Spin-off by Resverlogix is structured so that the Spinco bears the full burden of Part VI.1 tax on a “royalty” preferred share of Resverlogix

Resverlogix is proposing to spin-off a "Newco" subsidiary holding RVX Therapeutics to its shareholders.  The mechanics (which look vaguely like a butterfly reorganization, although this is not a butterfly) are somewhat more complicated than the usual (s. 86 exchange – then spin-off through redemption of new shares) plumbing because it is also part of the deal that Newco will hold "Royalty" preferred shares of Resverlogix which will participate in a portion of any revenues which are generated by Resverlogix from one of the pharmaceutical products in its development pipeline.  The dividends on these Royalty shares are reduced so that Newco effectively bears the full burden of the 40% Part VI.1 tax payable by Resverlogix on any such dividends: Resverlogix does not have to "pay" anything for the Part I deductions generated to it from the Part VI.1 tax.

Newco will not be listed, so that some precise footwork will be required to ensure that it has elected to be a public corporation at the time RRSPs and the like receive its shares.

Neal Armstrong.  Summary of Resverlogix Circular under Spin-Offs – S. 86 reorganization spin-offs.