The relaxation of s. 55(5)(e)(i) nonetheless may not accommodate purification butterflies

Although s. 55(5)(e)(i) deems siblings to deal at arm’s length for the purposes of the butterfly rules, on June 29, 2021 it was amended to provide an exception where the butterfly dividend was received or paid by a corporation of which a share of the capital stock “is” a qualified small business corporation share or of a family farm or fishing corporation.

It is suggested that this quoted use of the present tense signifies that the exception is allowed only to companies whose shares are QSBC shares in advance of the butterfly (although see also Interpretation Act, s. 10, and Barker v. Baxendale.) If so, a corporation owned by siblings could not undergo a purification butterfly so as to qualify as a QSBC, as it would not qualify as a QSBC at the precise time of the butterfly.

Neal Armstrong. Summary of David Carolin and Manu Kakkar, “Imperfect Timing: Subparagraph 55(5)(e)(i) Cannot Be Used in Purification Transactions,” Tax for the Owner-Manager, Vol. 24, No. 2, April 2024. p. 7 under s. 55(5)(e)(i).