CRA provided s. 55(3)(a) rulings respecting a spin-off by one Canadian subsidiary (CanSub1) of a public company (ParentCo) of CanSub1’s foreign subsidiary (ForSub1) to another wholly-owned Canadian subsidiary (CanSub2) of ParentCo. It was proposed that the acquisition by CanSub2 of the ForSub1 shares be followed by their s. 85.1(3) drop-down to a foreign subsidiary of CanSub2 in consideration for common shares of equivalent value. CRA ruled that this double transfer of the ForSub1 shares would not result in those shares not qualifying as capital property:
For purposes of subsection 85.1(3), provided that the ForSub1 Common Shares constitute capital property to CanSub1 immediately prior to the transfer of the shares by CanSub1 to CanSub2 … the transfer by CanSub1 of the ForSub1 Common Shares to CanSub2 … and the subsequent transfer by CanSub2 of such shares to ForSub2 … will not, in and by themselves, cause such ForSub1 Common Shares not to be capital property of CanSub2.
The reorganization also included a similar double-transfer of shares of another subsidiary (ForSub3), and CRA provided a similar ruling.