7 October 2011 APFF Roundtable Q. 17, 2011-0412171C6 F - 112(7) - Share-for-Share Exchange - 85(1) -- summary under Subsection 112(3)

Where there is an exchange of 100 common shares in the capital of a corporation for 100 "new" common shares in its capital, there could be considered to be no disposition of the old common shares (given that the share rights are identical), so that the s. 85(1) election is unavailable. On this basis, dividends received on the "old" shares could reduce a loss otherwise deemed to arise under s. 50(1)(b)(iii) on the insolvency of the corporation, so that it would be of no import that the continuity rule in s. 112(7) does not apply to (purported) s. 85(1) exchanges.