CRA addresses types of property held by an inactive business in a spit-up butterfly

In a split-up butterfly of a CCPC (DC) that had discontinued farming itself and had rented out its lands to other farmers, the farm land was treated as investment property whereas farming equipment and inventory which it had not yet been sold was classified as business property.

The receipt under the steps of deemed dividends both by DC and the transferee corporations (TCs) for the three family shareholders gives rise to a potential RDTOH circularity problem. The Directorate leaves this problem to the district offices, stating that they "will have to be consulted in order to determine which corporation will receive the dividend refund and which corporation will be subject to the Part IV tax liability under paragraph 186(1)(b)."

Neal Armstrong. Summaries of 2013 Ruling 2013-0502921R3 under s. 55(1) – distribution and s. 186(1).