in contemplation of

On two days in October 1996, the parent company (“Marjad”) of the taxpayer (“3295036”) transferred shares of two public companies, whose fair market value (“FMV”) substantially exceeded their adjusted cost base (“ACB”), to 3295036. Marjad did not have a Quebec presence whereas 3295036 was a Quebec filer. Marjad and 3295036 filed a joint s. 85(1) rollover election for federal and Ontario purposes, but did not make the equivalent Quebec election.

The taxpayer's shareholders circumvented the rule in s. 87(3), which required that the paid-up capital ("PUC") of a subsidiary corporation disappear on a vertical amalgamation, by arranging for the subsidiary corporation in question (whose shares had a high PUC but a low value) to be first distributed to the shareholder group before it and its previous parent were amalgamated horizontally to continue as a predecessor of the taxpayer. At the time of these transactions, the shareholder group had not yet decided how (or whether) they would utilize the preserved PUC.