CRA rules on a pubco spin-off of a U.S. business using s. 86
CRA has ruled that a spin-off by a Canadian public corporation (Parent”) to its shareholders of a Canadian Newco indirectly holding a U.S. business qualified as a s. 86 reorg. Under the Plan of Arrangement, the articles of Parent are amended to provide that the existing common shares of Parent are changed into Class A common shares (carrying two votes per share) and, at the same time, “New Common Shares” are added to the authorized capital with identical attributes to the former common shares. There then is an exchange of the Class A common shares for Newco shares and New Common Shares.
CRA ruled that s. 86 applied to the exchange, and that the previous change of the common shares into Class A common shares was not a disposition.