CRA ruled on a butterfly split-up of a rental property company (which was considered to carry on an active business because it had more than five full-time employees) between transferee companies (TCs) formed by its two shareholders, being holding companies for the families of two brothers (one of them, deceased).
Except for preliminary transactions to transfer registered title to the properties to new nominees, the proposed transactions were essentially to commence with DC increasing the PUC of its common shares by the lesser of (a) the safe income on hand attributable to the common shares at that time and (b) the aggregate of (i) its pre-1972 CSOH and (ii) an amount sufficient to trigger a refund of its RDTOH balance at that time, if any. The stated principal purpose of this step was to increase the ACB of the DC common shares, so as to eliminate the capital gain that would otherwise arise as a result of s. 88(2)(b)(ii) deeming the pre-1972 CSOH amount to be proceeds of disposition rather than a deemed dividend on the winding-up of DC at the completion of the transactions.