2021 Ruling 2021-0904311R3 F - Butterfly Reorganization -- summary under Subsection 191(5)

CRA ruled on transactions under which the assets of a farming corporation (DC) owned by the two farmer brothers were split under a net asset butterfly between DC and a Newco for the other brother (TC). Immediately after the butterfly, the brother owning TC gifts a portion of his shares to his adult son (also involved in the farming business) in reliance on the s. 73(4.1) rollover; and similarly, thereafter the brother left with TC effects a s. 51 exchange of a portion of his TC common shares for preferred shares and gifts his common shares to his son, who is active in the business and also on a s. 73(4.1) rollover basis. Perhaps because of this introduction of cousins into the structure, there is an unusual step in which, immediately after the issuance by TC of preferred shares to DC on the butterfly distribution to it of the three types of assets, an agreement is entered into specifying a dollar amount for those preferred shares for purposes of s. 191(4), which does not exceed the FMV immediately before the entering into of the agreement of each such share (with CRA ruling that there will be no Pt. VI.1 or IV.1 tax).