2006 Ruling 2006-0169241R3 - Butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether certain pre-butterfly sales of property by DC to an individual shareholder at FMV for cash will affect the rulings given in a split-up butterfly?

Position: No.

Reasons: These transactions meet the exemption under clause 55(3.1)(a)(iv)(C). Therefore, paragraph 55(3.1)(a) will not apply to taint the butterfly. Moreover, since the transfers are made to an individual shareholder, the transfers will not be part of the "distribution" for the purposes of subsection 55(1). Further, since DC will be related to each Holdco after the reorganization, paragraphs 55(3.1)(c) and (d) will not be applicable.

XXXXXXXXXX 								2006-016924

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling issued on XXXXXXXXXX, 2005 (our reference 2005-014483) on behalf of XXXXXXXXXX (the "Ruling")

All capitalized terms have the meaning assigned in the Ruling.

The Ruling will be amended by adding Paragraph 12A as follows:

"12A. Prior to the Effective Date, Father will purchase the following assets for cash from DC at their fair market value:

(a) DC's interest in a venture (includes a royalty interest and unsold inventory of XXXXXXXXXX) known as XXXXXXXXXX ;
(b) DC's shares and shareholder loans in a small corporation known as XXXXXXXXXX. which is a CCPC; and
(c) Certain office equipment of DC that has nominal value."

We confirm that the rulings issued in the Ruling will apply to the Ruling as amended herein subject to the limitations contained in the Ruling.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch