CRA rules on a two-wing split-up net asset butterfly

CRA ruled on a straightforward split-up butterfly. The distributing corporation (DC) was owned by five siblings (with the two sisters being the only common shareholders) and held stock market portfolio (treated as investment property) and cash and near-cash property (defined to include “marketable securities (other than those held as portfolio investments)”.

The shareholders transferred their shares of DC on a s. 85 rollover basis to two transferee corporations (the TCs) formed respectively for four of the five siblings and for the second sister, the two types of property were transferred on a pro rata and net asset rollover basis to the two TCs for consideration including TC preferred shares, those preferred shares were redeemed for notes, the TCs immediately established their first taxation year-ends and DC was wound up into the TCs under s. 88(2) (with the redemption notes being extinguished by operation of law and with any remaining CDA account flushed out using s. 88(2)(b)(i)). The timing of the first year-ends ensured no Part IV tax circularity issues.

Neal Armstrong. Summary of 2024 Ruling 2024-1008821R3 F under s. 55(1) – distribution.