2023 Ruling 2022-0958241R3 - Public Spin-Off Butterfly -- summary under Subsection 86(1)

CRA ruled on a butterfly spin-off by a listed Canadian corporation (DC) of its indirect interest in a foreign project to a “SpinCo” to be held by its shareholders, with most of the steps to occur pursuant to a plan of arrangement. The “old” common shares of DC were split into “new” common shares (bearing 2 votes per share) and preference shares pursuant to a s. 86 reorganization, with the DC shareholders then transferring their preference shares to SpinCo for SpinCo common shares. However, immediately before the effective set-off of the notes owing by DC and SpinCo to each other as a result of the subsequent butterfly mechanics, the “new” DC common shares were to be converted under s. 51 back into “old” common shares.