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The transfer of the shares of Mr X would be for the benefit of persons other than himself and that would contravene the requirement stipulated … above. ...

8 October 2010 Roundtable, 2010-0373211C6 F- Butterfly Transaction- Permitted Exchange-- summary under Paragraph 55(3.1)(b) Summary Under Tax Topics- Income Tax Act- Section 55- Subsection 55(3.1)- Paragraph 55(3.1)(b) issuance of shares by TC after the DC distribution without AOC of TC does not engage s. 55(3.1)(b) Where after a butterfly transaction, a family trust (whose beneficiaries are persons unrelated to the transferee corporation, the distributing corporation and their shareholders) acquires an interest in one of the transferee corporations by subscribing for shares of the capital stock of the latter for a nominal value, does this contravene s. 55(3.1)(b) given that an issuance of shares is not a disposition? ...

After stating that “[s]ince a corporation does not own its own shares prior to their issuance, it follows that the issuance of shares by a corporation to a trust for consideration equal to their FMV generally does not constitute a transfer of property to which subsection 75(2) could apply,” CRA went on to state: [T]o the extent that such a scenario does not contravene applicable corporate and trust law and that the Trust subscribed for shares of Opco and Newco for consideration equal to their FMV, it appears to us that the issuance of shares by Opco and Newco would not constitute a transfer of property to which subsection 75(2) would likely apply. ...

In those cases, the trust will be able to apply those expenses against its income other than taxable dividends, including against its net taxable capital gains … in order to allow for the maximum possible flow-through of the dividend tax credit to a beneficiary or beneficiaries, provided that this method does not contravene the legislative provisions relating to trusts or the trust agreement. ...

Accordingly, if it was reasonable to consider that Building 3 was acquired by Opco solely to replace Building 2, the requirements of s. 44(1) would not be satisfied because “Opco would have disposed of Building 2 (the only ‘replacement property’ relating to Building 1) before the time at which Opco disposed of Building 1 (the ‘former property’), which would contravene subsection 44(1).” ...

. … [D]epending on the circumstances surrounding subsequently deposited amounts, these payments could possibly contravene the requirements under paragraph 60.011(1)(b) …. ...

The summary states: Since the proposed structure does not contravene the laws and regulations governing the practice of XX in Quebec, the deduction of fees will not be denied as a current expense in computing the XX business income. ...

Furthermore, paragraph XXXXXXXXXX of the Letters Patent, which provides that the Corporation may acquire and hold shares of corporations, must not contravene the criterion set out in paragraph 149(1)(j) to the effect that the corporation must not acquire control of another corporation. ...