Madame exchanged her Class A shares of the corporation for Class D shares having a redemption amount which CCRA subsequently determined was substantially less than the FMV of the Class A shares, and filed a s. 85(1) rollover election respecting this exchange. Monsieur (her husband) then subscribed for Class A shares. After finding that s. 85(1)(e.2) likely was applicable unless a price-adjustment clause was applied, the Directorate went on to indicate that it would be appropriate for the TSO not to respect the clause, stating:
[I]t could be argued that the significant discrepancy between the FMV set by the taxpayer and the amount of the Agency's valuation demonstrates that the taxpayer made no real effort to determine the FMV of the shares. The jurisprudence has shown that a price adjustment clause can be ignored in cases where there is no good faith effort to determine the FMV of a property (See: Guilder News … .). On this basis, it seems to us that you would be free to ignore the price adjustment clause and therefore maintain an assessment under 85(1)(e.2).
… [If] you decide to recognize the price adjustment clause … the taxpayer must file an amended election to give effect to the price adjustment clause.