Subsection 86.1(2) - Eligible distribution
Cases
Morasse v. The Queen, 2004 DTC 2435, 2004 TCC 239
The taxpayer, who held American Depositary Receipts for a Mexican public company (Telmex) became the owner of an equal number of shares of another Mexican company (America Movil) pursuant to a spin-off transaction implemented by Telmex. The spin-off was implemented using a Mexican corporate law procedure called "escisión" or "split-up" under which an existing company is divided, creating a new company to which specified assets and liabilities are allocated.
Miller J. accepted the Crown's position that as this type of spin-off did not involve stock of a subsidiary being spun-off by a parent, it would never be a prescribed transaction.
Administrative Policy
2014 Ruling 2014-0530961R3 - Cross-Border Butterfly
In connection with a spin-off by a U.S. public company (Foreign PubCo) of a U.S. subsidiary (Foreign Spinco) to which one of its businesses was transferred, there was a butterfly split-up of an indirect Canadian subsidiary (DC) directly and indirectly holding Canadian portions of the two businesses in question, so that the Canadian transferee corporation (TCo) of DC was a subsidiary of Foreign Spinco. In connection with the subsequent spin-off by Foreign Pubco of Foreign Spinco, CRA ruled that provided that all of the conditions of ss. 86.1(2)(e) and (f) were met, the spin-off was an eligible distribution for purposes of s. 86.1. See summary under s. 55(1) – distribution.
10 October 2014 APFF Roundtable Q. 4, 2014-0534831C6 F
Is the making of a late election generally accepted without application of the penalty of $100 per month if the absence of a timely election is attributable solely to ignorance of the availability of the election or of the occurrence of an eligible distribution? CRA stated (TaxInterpretations translation):
The CRA does not intend to provide systematic administrative relief in the situation described… . …Each submitted case must be reviewed on a case by case basis and the Minister has discretion in the making of her decision. This discretion [on ss. 220(3.1) and (3.2)]is exercised in light of the guidelines provided in Information Circular 07-1… .
CRA Notice
//www.cra-arc.gc.ca/tx/bsnss/tpcs/frgncrp-eng.html">"Information for foreign corporations" 6 March 2012: Respecting the requirement in s. 86.1(2)(b) that the distribution consist only of shares, CRA states:
If the shares distributed in the course of the spin-off had rights to purchase other shares attached to them, the corporation should confirm that the rights plan was established for bona fide business purposes other than to obtain a tax benefit. It should also confirm that the rights did not have any significant value independent of the shares being spun-off at the time of the spin-off.
CRA Notice
//www.cra-arc.gc.ca/tx/bsnss/tpcs/spnffs-eng.html">"Eligible spin-offs": list by year of eligible spin-offs.
CRA Notice
//www.cra-arc.gc.ca/tx/bsnss/tpcs/cdnshrhldrs-eng.html">"Information for Canadian shareholders" 5 September 2012: Includes a simple numerical example. Also describes how a corporate shareholder which files electronically is to provide the required information, and states that a letter filed by a taxpayer with a paper return should contain:
◦ written notification that the shareholder is electing to defer tax relating to the distribution of spin-off shares from a U.S. (or other foreign) corporation, including a description of both the original and spin-off shares;
◦ the number, cost amount otherwise determined, and fair market value of the client's original shares, both immediately before the distribution and after the distribution; and
◦ the number and fair market value of the spin-off shares immediately after distribution.