In order to convert their shares of a private company ("MHT") that held preferred shares of a Canadian public corporation ("Videotron") into excluded property, the taxpayers transferred their shares of MHT to a newly incorporated corporation ("8855") in exchange for shares of 8855, and then had MHT transfer its Videotron securities to 8855 on a rollover basis in consideration for convertible securities of 8855. The taxpayers then sold their shares of 8855 to Videotron in consideration for shares of Videotron and Videotron wound up 8855 on a rollover basis, with the securities that 8855 held in Videotron thereby being cancelled.
Section 84(2) did not apply to this transaction because the property received by the taxpayers (the shares of Videotron) was never the property of 8855: "the property received by the Respondent simply never existed in the hands of 8855" (para. 40).