CRA rules on a single-wing butterfly of a DC held by two families’ Holdcos, with DC then amalgamated with one of the Holdcos

CRA ruled on a relatively straightforward single-wing butterfly spin-off of a proportionate part of its assets (on a net FMV basis) of a portfolio investment company (DC) held (mostly indirectly) by two sisters (A and B) and B’s children. A mostly held shares of DC through Holdco A, and B and her children indirectly held DC through a second holding corporation (TC). Before the butterfly reorganization, the CDA of DC, and then the ERDTOH and NERDTOH of DC, were proportionately split between Holdco A and TC through staged increases in the stated capital of the shares in DC held by the two holding companies, with the requisite s. 83(2) and 89(14) elections being made.

DC then distributed a proportionate share of its net assets to a new subsidiary of TC (Newco) in consideration for preferred shares of Newco, which were redeemed for a note, which was assumed by TC on a Newco winding-up. DC then repurchased the DC shares held by TC for notes, and the two sets of notes were set-off.

After some clean-up, DC and Holdco A then vertically amalgamated.

Neal Armstrong. Summary of 2022 Ruling 2021-0911791R3 F under s. 55(1) – distribution.