CRA applies its position on fractional share exchanges under 85.1(1) domestic exchanges to 85.1(5) exchanges

Except for it entailing an exchange of shares of a non-resident corp for (treasury) shares of another non-resident corp, the rollover in s. 85.1(5) is similar to that in s. 85.1(1).

The similarities extend to the CRA treatment of cash consideration. S4-F5-C1 states in the s. 85.1(1) context that cash can also be received – so that the rollover applies only to the exchange of a fraction of each share of the vendor for treasury shares (with the remainder fractions of shares being exchanged for cash on a non-rollover basis) – provided that this is clearly specified in the terms governing the exchange.

This position also extends to s. 85.1(5). However, the foreign merger parties often will be insensitive to Canadian tax considerations, so that the allocation requirement in the Folio will not be satisfied – as appeared to be the case in the example considered by CRA.

Neal Armstrong. Summary of 23 August 2016 External T.I. 2015-0614981E5 under s. 85.1(5).