2015 Ruling 2014-0558831R3 - No-type of property spin-off butterfly -- summary under Paragraph 85(1)(d)

A butterfly spin-off by a public corporation (DC) of two business divisions (which it prepackaged in a Newco subsidiary) is preceded by a drop-down of the assets (some held directly) of those two divisions by DC into Newco. On the drop-down, the DC cumulative eligible capital is treated as a proportionate portion of the actual CEC amount. In particular, for purposes of s. 85(1)(d)(i), the reference therein to DC’s CEC in respect of its business immediately before the disposition shall be interpreted to mean a pro rata proportion of DC’s CEC in respect of its business immediately before the transfer to Newco represented by the transferred eligible capital property in respect of the business (based on the relative “fair market value at that time or the amount of the CEC that is attributable to” the transferred ECP relative to that of all of DC’s ECP in respect of the business.)