An estate freeze entailed the exchange by Mr. A of his common shares of Opco by way of purchase for cancellation for Class A preferred shares with a redemption value of $1 million, followed by a common share subscription by his two adult children for nominal consideration. The exchange agreement contained a price-adjustment clause providing that in the event of a CRA challenge to the FMV of the Class A preferred shares received by Mr. A as consideration, Mr. A and Opco would agree to exchange the those Class A preferred shares for an equal number of Class B preferred shares.
After noting that in such a situation “it is not subsection 15(1) that the CRA would consider applying if the FMV of the freeze preferred shares was less than the FMV of the exchanged common shares, but rather subsection 51(2).”