Bco will transfer to a newly-incorporated subsidiary (Newco) all its shares of a wholly-owned subsidiary (Cco) on a s. 85(1) rollover basis in consideration for common shares and a demand non-interest bearing promissory note (the "Bco-Newco Note"), which is convertible after a specified period at the holder’s option into Newco common shares with an FMV equaling that of the note. Following a short-form amalgamation of Newco and Cco, Bco will exercise its right to convert the Bco-Newco Note to common shares of Amalco.
Rulings include the application of s. 51(1) and non-application of s. 51(2).