CRA rules that a double transfer of shares under ss. 85(1) and 85.1(3) would not affect the shares’ capital property status

CRA provided s. 55(3)(a) rulings in the usual guarded form respecting a spin-off by one Canadian subsidiary (CanSub1) of a public company of CanSub1’s foreign subsidiary (ForSub1) to another wholly-owned Canadian subsidiary (CanSub2) of the public company. The summary stated respecting the non-application of GAAR that “there is no creation or streaming of cost base and the preferred shares ... are cross-redeemed for notes that are set-off and cancelled." The Additional Information stated that the proposed transaction is not expected to affect the trading in the shares of the public company.

It was proposed that the acquisition by CanSub2 of the ForSub1 shares be followed by their s. 85.1(3) drop-down to a foreign subsidiary of CanSub2. CRA ruled that this double transfer of the ForSub1 shares would not result in those shares not qualifying as capital property.

Neal Armstrong. Summaries of 2016 Ruling 2016-0648991R3 under s. 55(3)(a) and s. 85.1(3).