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CRA responded: [T]he CRA is willing to recognize an agency relationship for tax purposes to the extent that certain conditions are met, which are: 1. the relationship between the parties is legally that of principal-agent; this implies, inter alia, that the transactions relating to the agency are effective and complete in legal terms; 2. this relationship stems from a prior formal agreement and does not constitute an ex post facto arrangement; 3. this relationship does not contravene any legislation; 4. this relationship is not a sham; 5. this relationship is disclosed to the CRA and the relevant documents are forwarded to the CRA at the appropriate time; 6. the facts relating to a given situation corroborate the existence of the principal-agent relationship between the persons concerned. ...

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) …. ...