CRA accepts that a significant arm’s length investment in a related corporation that will purchase the assets retained under a s. 55(3)(a) spin-off did not occur as part of the series
Mother along with an arm’s length business associate (“Investor”) wanted to use some of the assets of the family business corporation (“Amalco”) to engage in some sort of development project, whereas her daughter did not want any part of this. Accordingly, it was agreed that one of the two businesses would be spun off to the Daughter’s Newco under s. 55(3)(a). It was also contemplated that thereafter the business retained by Amalco would be sold by Amalco at fair market value to a recently formed development company (XCo) which was controlled by Mother but in which Investor had made a significant equity investment.
This investment by Investor would have jettisoned s. 55(3)(a) treatment of the spin-off by virtue of s. 55(3)(a)(ii) if it had been considered to have occurred as part of the same series of transactions. However (before giving a s. 55(3)(a) ruling of sorts), CRA accepted a representation that:
The Acquisitions [including Investor's equity investment] did not rely on the Proposed Transactions in order to produce a given result. The Proposed Transactions will not rely on the Acquisitions to produce a given result.
In addition ... the Acquisitions ... would have been undertaken irrespective of whether any of the Proposed Transactions will be implemented..
Neal Armstrong. Summary of 2018 Ruling 2017-0683941R3 under s. 55(3)(a)(ii).