CRA rules on two successive butterflies spin-offs to accomplish a public company spin-off

Parent, a listed corporation with a specified shareholder (and perhaps with two classes of multiple voting and single voting shares), wishes to spin off one of its subsidiaries, whose shares are held, in part, through a subsidiary of Parent (Sub1) and partly by Parent directly. CRA provided butterfly and other ruling on two successive spin-off butterflies pursuant to which Sub1 spins-off its shares of the subsidiary to Parent, then Parent drops all of its shares of the subsidiary into a Newco which then is spun-off to its shareholders.

In addition:

• Employee stock options continues to apply only to the shares of Parent, but with a reduced exercise price to reflect the valuation impact of the spin-off, such that the s. 7(1.4) rollover would apply.
• S. 85.1 applies to the component of the second spin-off pursuant to which the Parent shareholders exchange special shares of Parent received by them under a s. 86 reorg to Newco in exchange for Newco shares (unless they choose to jointly elect with Newco under s. 85(1)).
• Newco will elect in its first return pursuant to the postamble in the definition of “public corporation” in s. 89(1) to have been a public corporation from the beginning of it first year.

Neal Armstrong. Summary of 2021 Ruling 2020-0852951R3 under s. 55(3.02).