A third party (Buyco) acquires a 70% equity stake in Opco (previously wholly-owned by Holdco, with which Buyco dealt at arm’s length) by subscribing for treasury shares of Opco, with Opco using the subscription proceeds to purchase for cancellation 70% of its common shares held by Holdco. In order to effect a bump in the shares of Opco’s only asset, being the shares of its wholly-owned subsidiary (“Opco1”), Buyco and Holdco will transfer their shares of Opco on a s. 85(1) rollover basis to a newly-incorporated corporation (“Newco”), with Opco then being wound-up into Newco and with Newco making a s. 88(1)(d) bump designation.
Would Holdco be a person described in s. 88(1)(c)(vi)(B)(I), having acquired a "substituted property" (the Newco shares) described in s. 88(1)(c.3)(ii) in replacement for the Opco shares? CRA responded:
Holdco would be a person described in subclause 88(1)(c)(vi)(B)(I). However, the CRA would generally take the position that the Newco shares to be acquired by Holdco would not be subparagraph 88(1)(c.3)(ii) property. … [S]ubparagraph 88(1)(c.3)(ii) would not apply in such a situation.
CRA went on to note that s. 88(1)(c.3)(i) would not apply because of the exception for specified property, namely, the Newco common shares held by Holdco would be specified property pursuant to s. 88(1)(c.4)(i).