My very first butterfly was undertaken pursuant to 55(3)(a) for a couple who were divorcing after many years of marriage. I recall looking carefully at whether their divorce would be treated as part of the series of transactions that included the butterfly. I found a CRA technical interpretation to the effect that the Agency would not consider the divorce to be part of the series even though the butterfly was being undertaken in contemplation of the divorce. The CRA, it seems, is happy to facilitate marriage breakdowns.
A recent technical interpretation is more of the same, but it addresses a common law relationship. Technical interpretation 2020-0839571E5 dated March 23, 2021, states that a common law couple can complete a 55(3)(a) butterfly of Opco 85 days after they separated by reason of a breakdown of their relationship, and only five days before they will cease to be related for tax purposes (s 248(1) “common-law partner”).
