Mr. X, who held the common shares of Holdco which, in turn, held all the shares of Opco which, during the last 24 months satisfied the description of having more than 50% but less than 90% of the FMV of its assets being attributable to assets used principally in its active business, engaged in a reorganization (apparently a tuck-under transaction) in which Mr. A acquired shares of Opco in exchange for his Holdco shares on a s. 85(1) rollover basis, and Holdco became an empty shell. After noting that s. 110.6(14)(f)(i) was applicable to this transaction, CRA stated in response to the question as to whether the asset utilization test referred to in subpara. (e)(ii) of the QSBCS definition took into account the more stringent test in para. (d) of that definition:
Paragraph 110.6(1)(e) of the definition of QSBCS applies where an individual holds a share of a corporation in substitution for another share during the 24-month holding period. The new share will be a QSBCS only to the extent that the replaced share was a QSBCS at the time of replacement. Thus, the replaced share must not have been held by a person (or partnership) who was not related to the individual during the 24-month period preceding the replacement time and must have been a share of a CCPC that satisfies the asset-use test under paragraph 110.6(1)(c).
In response to your question, it is our view that the asset use test in subparagraph 110.6(1)(e)(ii) takes into account the more stringent test in paragraph 110.6(1)(d).