Common shares of a corporation had been held by an individual continuously from April 26, 1995 onwards, and satisfied all the conditions for transitional relief under s. 131(11)(b) of the 1998 amending bill as it applied to the stop-loss rule in s. 112(3.2). If preferred shares of the corporation are issued to the individual as a stock dividend on the common shares, would those preferred shares qualify for the transitional relief on the basis of being considered to have been held on and after April 26, 1995, given that s. 248(5)(b) deems a share received as a stock dividend on another share of the capital stock of a corporation to be property substituted for that other share?
In rejecting this proposition, CRA stated that “it is clear that the preferred shares … were not held by the particular individual on April 26, 1995, notwithstanding that the preferred shares would be deemed to be substituted property for the common shares,” and also noted that a stock dividend did not come within the continuity provisions of s. 131(12) of the amending Bill.