Shareholders of DCco transfer shares of DCco having an aggregate PUC of $10,000 and an ACB of $1,000 and a FMV higher than $10,000 to TCco in consideration for shares of TCco and as part of a distribution of property of DCco to TCco. The DCco shares owned by TCco are subsequently redeemed, with the dividend from such redemption being exempt from the application of s. 55(2) under either s. 55(3)(a) or (b). CRA stated that although “the excess of PUC over ACB of the shares of DCco … could imply that the shareholders may have realized a bargain purchase of the tax attributes of the assets of DCco,” however:
[S]nce the main concern of paragraphs 55(3)(a) and 55(3)(b) is to allow for a tax-free reorganization, the CRA would not attempt to challenge a reduction of PUC on the shares of DCco that are held by TCco prior to their redemption where the potential gain on the shares of DCco is transferred to the shares of TCco that are held by the shareholders, i.e., where the PUC and ACB of the shares of TCco held by the shareholders are equal to the PUC and ACB respectively of the shares of DCco held by the shareholders at the beginning of the series of transactions.