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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
APFF - 1995
Question 20
Butterfly transactions
Ms. X, Ms. Y et Ms. Z want to divide up the assets of Opco I and Opco II and continue on their respective ways.
An amalgamation of Opco I and Opco II followed by a butterfly transaction of the resulting corporation seems acceptable under section 55 of the Act. However, for legal reasons these two corporations cannot amalgamate. Any other transaction or series of transactions that will produce the same result would go against subsection 55(3.1) of the Act.
How can this result be justified from a tax policy standpoint?
Would Revenue Canada agree to issue an advance ruling concerning an alternative transaction? For example, a transfer of shares in Opco I to Newco (JSCA), a folding of Opco I into Newco, amalgamation of Newco and Opco II and a butterfly transaction with the resulting corporation.
Answer by the Department of Revenue
The proposed alternative would constitute an acquisition of property in contemplation of a distribution, by a corporation that has been replaced by the distributing corporation, other than an acquisition provided for in subparagraphs 55(3.1)(a)(i) to (iv) of the Act. Therefore, a favourable advance ruling could not be issued for this transaction.
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