18 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1082)

Mr. A, who owned 100% of the common shares of Opco, transfers 1/2 of those shares to Opco in exchange for preferred shares of Opco having a fair market value of $500,000 and a paid-up capital equal to the paid-up capital of the transferred common shares. The amount elected under s. 85(1) is $500,000. Mr. A will be able to claim the capital gains exemption in respect of this transaction.

On the transfer by Mr. A of 1/2 of the common shares of Opco to Opco in exchange for preferred shares of Opco having 1/2 the paid-up capital of the old common shares of Opco, s. 84(3) would not deem Opco to have paid a dividend to Mr. A because the amount paid by Opco by issuing preferred shares would be equal to the amount by which the paid-up capital in respect of the preferred shares increased by virtue of the issue of preferred shares to Mr. A.

s. 84.1 does not apply to the disposition by an individual of 1/2 of his common shares of Opco to Opco in exchange for preference shares of Opco because the common shares of Opco would not thereby be disposed of to another corporation.