Mr. X, who holds all 100 common shares of Corporation A having a fair market value, ACB and PUC of $1,000,000, $500,000 and $1000, respectively, exchanges those common shares for 100 common shares and 500,000 preferred shares of Corporation A. Such exchange of common shares of the capital stock of a corporation for preferred shares and common shares in its capital stock would not constitute a disposition of any of the common shares for purposes of s. 85(1) (and only entail an issuance of the preferred shares), even though there was a cancellation of the "old" common shares. CRA stated:
The CRA's longstanding position on the concept of disposition in situations similar to the Particular Situations is to focus on the nature of the changes made to the shares of the capital stock of a particular corporation rather than the method by which the changes are accomplished. Our approach is based on the fact that we consider a shareholder's interest in a corporation to be an intangible asset, consisting of a bundle of rights and privileges attached to the shares granted by the articles of incorporation and the relevant corporate laws. Thus, a particular transaction in a particular share of the capital stock of a particular corporation held by a taxpayer may not constitute a disposition where, after the transaction, the taxpayer is left with another share of the capital stock of the particular corporation that has identical rights, privileges, restrictions and conditions as the rights, privileges, restrictions and conditions attached to the particular share.