The authors note a number of significant issues with 55(3.1)(c):
- What is a series of transactions? (55(3.1)(c)(i))
- What is considered the ordinary course of business? (subclause 55(3.1)(c)(i)(A)(I))
- How is the 10% allowable threshhold determined? (pre- and postamble to 55(3.1)(c) and clause 55(3.1)(c)(ii)(B)) The difficulty is that the 10% test applies to the fair market value of sold property as it changes throughout the series after the butterfly as a percentage of the fair market value of all property at the time of the butterfly.
David Carolin and Manu Kakkar “Problematic Post-Butterfly Transferee Corporation Dispositions Involving Paragraph 55(3.1)(c): Part I” 22:2 Tax for the Owner-Manager (April 2022)