Principal Issues: Subsection 86.1(3) provides for adjustments to the cost base of "an original share" and "a spin-off share". In the case of a spin-off where the ratio of original shares to spin-off shares is not 1:1 (for example, where the taxpayer receives 0.5 spin-off shares for every one original share that he or she holds), should the term "the spin-off share" as used in "B" and "C" of the calculation always mean a single, whole share or should it refer to that fraction of a whole spin-off share that is equal to a single, whole original share?
Position: The better position is that the distribution ratio (i.e., number of spin-off shares received per original share held) should be taken into account in calculating the ACB adjustments.
Reasons: To interpret "the spin-off share", for purposes of subsection 86.1(3), as meaning a single, whole share leads to absurd results. Also, "spin-off share" and "original share" are not defined as such; those terms are defined only as a collective (i.e., "spin-off shares" and "original shares"). The ACB adjustments in subsection 86.1(3) are consistent if made either by considering the shares collectively or by taking into account the distribution ratio. Also, the definition of "share" in subsection 248(1) includes a fraction of a share, therefore, it is not unreasonable to interpret "spin-off share" as meaning "the share, or fraction of a share" that is received on account of each original share held. See FITAC document # F 2002-0118937.