55(3.01)(g) butterflies

The authors describe a scenario where Aco and Bco own 85% and 15% respectively of Opco. Opco cannot spin-off its real property to Realco where Aco and Bco become direct 85/15 shareholders of Realco. 55(3)(a) will not apply because Bco is an unrelated person. 55(3)(b) likely cannot apply, if the only property transferred is the real property.

Aco and Bco, however, can cause Opco to spin-off the real property to Realco under 55(3)(a), if both of the latter two corporations become wholly-owned subsidiaries of “Middleco” first (where Middleco is owned 85/15 by Aco and Bco). Paragraph 55(3.01)(g) provides the statutory mechanism.

Carolin, Kakkar and Volfovsky “Tax Alchemy and Paragraph 55(3.01)(g): Converting a 55(3)(b) Divisive Reorganization into a 55(3)(a) Related-Party Butterfly” Tax for the Owner-Manager 24:1 (January 2024)

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