CRA indicates that s. 86.1 treatment is not available where a spin-off is structured as a share exchange transaction

The definition of eligible distribution in s. 86.1(2) accommodates the packaging by a US public company (US Pubco) of a portion of itself into a subsidiary (the Spinco), followed by a dividend-in-kind by US Pubco of the Spinco shares to its shareholders – so that, provided the other conditions are satisfied, the Canadian shareholders can receive rollover treatment. CRA confirmed that s. 86.1 rollover treatment was not available where the spin-out takes the form of an exchange transaction, i.e., pursuant to an exchange offer, the shareholders are given the choice of exchanging US Pubco shares for Spinco shares based on the stipulated terms.

Neal Armstrong. Summary of 25 November 2021 CTF Roundtable, Q.3 under s. 86.1(2).