Section 86

Subsection 86(1) - Exchange of shares by a shareholder in course of reorganization of capital

Cases

Special Risks Holdings Inc. v. The Queen, 86 DTC 6035, [1986] 1 CTC 201 (FCA)

The taxpayer, following a modification in the capital structure of a company ("RMC") exchanged its voting shares of that company for non-voting...

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See Also

Dunstan v. Young, Austen & Young Ltd., [1989] BTC 77 (C.A.)

In finding that an issuance of shares by a company to its existing beneficial shareholder, followed by the application of the subscription...

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Administrative Policy

2023 Ruling 2022-0958241R3 - Public Spin-Off Butterfly

CRA ruled on a butterfly spin-off by a listed Canadian corporation (DC) of its indirect interest in a foreign project to a “SpinCo” to be held...

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2021 Ruling 2021-0916821R3 F - Continuance corporation from CBCA to Co-operative

A corporation incorporated under the Canada Business Corporations Act (Opco) was continued as a co-operative under the Co-operative Corporations...

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2022 Ruling 2021-0884331R3 - Gross Asset Butterfly

As a preliminary to a gross-asset butterfly transaction in which DC (whose preferred shares and common shares each were owned equally by three...

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2020 Ruling 2020-0854401R3 - Internal Reorganization 55(3)(a)

CRA ruled on the s. 55(3)(a) spin-off by DC (held by three siblings through holding companies and, in turn, holding three Opcos as well as three...

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27 October 2020 CTF Roundtable Q. 14, 2020-0860971C6 - Section 86 Reorganization of Capital

It is common for corporations to include multiple share classes in their corporate structure in contemplation of subsequent reorganizations or...

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2017 Ruling 2016-0679281R3 - subsections 84(4.1) and 86(1)

Preliminary reorganization

An arrangement agreement is entered into between Parent (a listed Canadian public corporation) and its new subsidiary...

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2016 Ruling 2016-0635101R3 - 55(3)(a) Spin-Off to Use Parent Losses

As a preliminary step in a s. 55(3)(a) spin-off transaction, a preliminary s. 86 reorg was effected through an exchange of the “old” common...

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2016 Ruling 2015-0623731R3 - Subsections 55(2) and (2.1)

As part of a s. 55(3)(a) spin-off transaction, Sub2 and its Parent undertake a s. 86 reorganization of Sub 2’s capital so that, following...

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2015 Ruling 2014-0558831R3 - No-type of property spin-off butterfly

DC is a public corporation with two classes of common shares (namely, multiple and subordinate voting shares). Preliminarily to a butterfly...

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2014 Ruling 2014-0533601R3 - Spin-off butterfly - subsection 55(2)

A spin-off butterfly reorganization by DC (a Canadian controlled private corporation) commenced with what was ruled to be a s. 86 reorganization...

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2013 Ruling 2013-0491651R3 - Cross-Border Butterfly

Preliminarily to a split-up butterfly of DC which, in turn will precede a spin-off by Foreign PubCo (DC's non-resident indirect public company...

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7 October 2011 Roundtable, 2011-0412191C6 F - Sec. 86 - Reorganisation of the Capital of a Corp.

Q.B.C.A. s. 91 of the new Q.B.C.A. permits a corporation to convert the shares of a particular class into shares of a new class, through a simple...

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10 June 2011 Roundtable, 2011-0404641C6 F - Shareholders Agreement and FMV

2008-0285241C6 indicated that a shareholders' agreement should not contain clauses that would have the effect of reducing the value of freeze...

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2010 Ruling 2010-0373801R3 - Conversion from a BV to a DC

Proposed transactions

BV, which is a private limited liability company under Dutch law, will convert into a Dutch cooperative ("DC") pursuant to...

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5 May 2010 External T.I. 2010-0359791E5 F - Significant increase - redemption of shares

An estate freeze was implemented for the benefit of X’s child under which X’s Holdco and a third-party Holdco exchanged 60% and 40% of the...

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2006 Ruling 2006-0177342R3 - Creation of an income trust

With a view to implementing a butterfly reorganization, the common shares of BCo are exchanged for newly created common shares of CCo (having the...

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16 December 2005 External T.I. 2005-0150411E5 F - Roll-over Provisions and Partnership

Are the rules in ss. 51(1), 85.1(1) or 86(1) (which refer to a "taxpayer") available to a partnership in a reorganization where it exchanges...

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5 January 2001 External T.I. 2000-0010905 F - Valuation - Freeze shares

The CCRA requirement that freeze preference shares be redeemable at the option of the holder would not be satisfied where the holder of such...

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28 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1080)

The fact that the exchange shares were authorized before the exchange was contemplated would make little difference as to whether the shares...

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ATR-22R (14 April 89)

Favourable rulings are given where:

  1. Holdco "exchanges" 100% of the issued common shares of Opco for redeemable retractable non-voting special...

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87 C.R. - Q.67

The automatic conversion of an old share to a new share of another class would not necessarily be a reorganization for purposes of section 86.

Articles

Paul Tamaki, "Book4Golf: Convertible Share Financing", Corporate Finance, Vol VII, No. 2, 2000, p. 731

Discussion of utilization of s. 86 reorganization in order to receive boot (warrants) on a tax-free basis.

Ewens, "Reorganizations of Capital: Section 86", 1995 Canadian Tax Journal, Vol. 43, No. 3, p. 783.

Smith, "Corporate Restructuring Issues: Public Corporations", 1990 Corporate Management Tax Conference Report, pp. 6:28-6:32.

Subsection 86(2) - Idem [Exchange of shares by a shareholder in course of reorganization of capital]

See Also

Mady v. The Queen, 2017 TCC 112

The taxpayer, who owned all the shares of his dental corporation (“MDPC”), agreed to sell all the MDPC shares to third-party purchaser and its...

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Administrative Policy

1996 Corporate Management Tax Conference Round Table, Q. 13 (C.T.O. "Benefit of Conversion")

Although s. 86(2) does not contain an exclusion for wholly-owned corporations, ordinarily RC would not consider that it is reasonable to regard...

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24 March 1993 T.I. (Tax Window, No. 30, p. 1, ¶2490)

Re potential application of s. 86(2) where, following a decline in the fair market value of Opco, the holder of redeemable preferred shares...

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1993 A.P.F.F. Round Table Q. 6

S.86(2) normally should not apply to an estate refreeze in which preferred shares having a redemption value of $2 million and a fair market value...

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Subsection 86(2.1)

Administrative Policy

1 June 2001 External T.I. 2001-0075455 F - Remaniement et capital versé

On a reorganization of capital, Ms. A exchanges her common shares of Aco, having a PUC and ACB of $10 and an FMV of $10,000 (with the balance of...

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Subsection 86(3) - Application

Administrative Policy

1995 Tax Executives Institute Round Table Q. 21 (C.T.O. Fax Service Doc. No. 9510750)

Where all the outstanding common shares of Opco are held by Publico, and following the amendment of the articles of Opco, Publico exchanges half...

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