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Situations 1 and 2 CRA considered that the non-resident would have rights to all the Opco shares because the non-resident would have rights to the shares of each of the resident shareholders upon becoming a defaulted shareholder. ...

CCRA indicated that although s. 84(2) would not apply, it appeared that the dividends resulting from the winding-up of Xco and the distribution of Xco property to ABco and CDco could technically give rise to the application of s. 55(2), to the extent that one of the purposes of the transaction or series of transactions was to significantly reduce the portion of the capital gain that, but for the dividend, would have been realized on the disposition of an Xco share at FMV immediately before the dividend and that could reasonably be considered to be attributable to anything other than income earned or realized by a corporation after 1971 and before the "safe income determination time" in respect of the series of transactions. ...

Furthermore, "any dividend paid by PC1 to Spouse A would be considered to be derived directly or indirectly from a “related business” carried on by PC2 (and not PC1) in Year 2 and subsequent years," given that the "derived directly or indirectly" phrase was to be construed broadly. ...

CRA noted: s. 110.6(14)(f)(i) provided that, for purposes of the requirement in s. 110.6(1)(b) that the shares 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 unless they were issued as consideration for other shares (the “original shares”). however, s. 110.6(1)(e)(i) required that throughout the period beginning 24 months before the determination time and ending at the time of the share exchange (the “substitution”), the original shares were not owned by anyone other than the individual or a related person or partnership; and that s. 110.6(1)(e)(ii) required that the original share had qualified under the asset and activity test described under para. ...