CRA indicates that s. 51(1) is inapplicable to an exchange for identical shares

2004-0092561E5 indicated that an exchange of 100 common shares for 500,000 preferred shares and 100 common shares of the same corporation (with the same attributes), followed by the cancellation of the “old” common shares, would not constitute a disposition of the 100 common shares, so that the s. 85(1) election would not be available. Would s. 51(1) apply to the exchange?

CRA indicated that s. 51(1) would not apply if there was no disposition, but noted that if there was no disposition, there would be no capital gain or loss.

Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.4 under s. 51(1).