CRA indicates that s. 110.6(14)(f)(i) can apply to an amalgamation and that s. 110.6(1)(e) applies to successive share substitutions (including an amalgamation)

S. 110.6(14)(f)(i) provides that, for purposes of the requirement in s. 110.6(1)(b) that mooted qualified small business corporation shares ("QSBCSs") must not have not been owned during the 24 months preceding their disposition (the “determination time”) by anyone other than the disposing individual or a related person or partnership, such shares will be considered to have been so owned prior to their issuance by a “bad” owner unless they were issued as consideration for other shares (the “original shares”).

However, s. 110.6(1)(e)(i) requires that throughout the period beginning 24 months before the determination time and ending at the time of the share exchange (the “substitution”), the original share was not owned by anyone other than the individual or a related person or partnership.

Furthermore, s. 110.6(1)(e)(ii) requires that the original share had qualified under the asset and activity test described under para. (c) during such initial (pre-substitution) period.

Regarding the situation where an individual (Mr. X) exchanges his majority shareholding of Opco for shares of a new personal holding company Holdco) and then, around a year later, receives replacement shares of Amalco on an amalgamation of Holdco with Opco followed by a sale by him (and the minority shareholder) of their Amalco shares to a third party, CRA accepted that s. 110.6(14)(f)(i) applied on the amalgamation, i.e., that the Amalco shares could be regarded under the scheme of the Act as being “issued” in consideration for the shares of the relevant predecessor (Holdco).

CRA further indicated that s. “110.6(1)(e) can apply respecting multiple substitutions” so that, under s. 110.6(1)(e)(ii), it would be necessary both for Holdco to satisfy the s. 110. 6(1)(c) test for the period from its issuance of shares in exchange for Opco shares through to the amalgamation, and for Opco to satisfy that test the portion of the period beginning 24 months before the sale ending and ending with such share exchange.

Neal Armstrong. Summary of 4 January 2022 External T.I. 2015-0607531E5 F under s. 110.6(1) - qualified small business corporation share - para. (e),