CRA considers it to be objectionable for a s. 55(3)(a) spin-off to result in an increase in the aggregate outside basis

Where an intermediate holding company (Holdco) wishes to have its subsidiary (Opco) spin off a business to another Holdco subsidiary (Newco) in compliance with s. 55(3)(a), this technically can be accomplished by Opco selling that business to Newco for preferred shares, retracting those prefs for a note, and distributing the note to Holdco as redemption proceeds for a portion of the Opco shareholding, before that note is contributed to Newco. This will result in Holdco having full basis for its shareholding in Newco (i.e., a cost equal to the net fair market value of the business transferred to Newco), so that the aggregate ACB of its shareholdings in Opco and Newco increases as a result of the transactions. CRA considers that this increase is contrary to the object of s. 55(2), and “would consider the application of GAAR.”

If butterfly-style mechanics instead are used to spin-off the business to Newco, this is unobjectionable since the resulting ACB of Holdco’s Newco shareholding would be equal to a pro-rata portion of its previous ACB in the Opco shareholding.

Neal Armstrong. Summary of 2015-0604521E5 under s. 55(3)(a).