The CRA might apply the GAAR to a 55(3)(a) butterfly if
A + B > C
where
A is the ACB of the remaining shares in the capital of DC after the butterfly
B is the ACB of the DC property transferred to TC
C is the ACB of the shares in the capital of DC immediately before the butterfly
In addition, the CRA has stated
that simply creating for the spinout, by means of subsection 51(1) or 86(1), DC preferred shares that have an aggregate redemption and retraction amount equal to the FMV of the spin property may not result in a sufficient elimination of ACB. This is because the additional ACB that may be created by the capitalization of safe income is not taken into account.
The author concludes “It appears that, in order to plan in accordance with the CRA’s administrative views, safe income estimates are now required. Respectfully, it is debatable whether this requirement is supported by the legislation.”
Joan Jung “Changing the Analysis for a Typical Spinout” 22:1 Tax for the Owner-Manager (Jan 2022)
