Where after a butterfly transaction, a family trust (whose beneficiaries are persons unrelated to the transferee corporation, the distributing corporation and their shareholders) acquires an interest in one of the transferee corporations by subscribing for shares of the capital stock of the latter for a nominal value, does this contravene s. 55(3.1)(b) given that an issuance of shares is not a disposition? CRA responded:
[T]he issuance of treasury shares from the transferee corporation to the family trust is not a transaction within subparagraph 55(3.1)(b)(i) because of the issuance by a corporation of a share of its capital stock not constituting a "disposition" of property for the purposes of the Act as provided for in paragraph (m) of the definition of "disposition" in subsection 248(1).
Furthermore, subparagraph 55(3.1)(b)(iii) would not apply because, in the particular situation, there is an acquisition of shares of the capital stock of a transferee corporation made after the distribution was completed; and not an acquisition of shares of the capital stock of the distributing corporation in contemplation of the distribution.
Finally … to the extent that the control of the transferee corporation was not acquired by the family trust, subparagraph 55(3.1)(b)(ii) would also not be applicable.