Jin Wen and Michelle Dickinson, “Are Shares Tainted Forever Under Subsection 84.1(2.1)?”, 8:4 Cdn Tax Focus (Nov 2018), discusses the rule in subsection 84(2.1), which grinds PUC as if a vendor had claimed the capital gain exemption but never does, if the vendor claims a reserve the transfer (see CRA document 2015-0594461E5 (May 20, 2016) and the CRA’s response to the STEP Roundtable, question 17). The authors suggest deliberately disqualifying shares as qualified small business corporation shares to avoid the application of s 84.1(2.1).
The Federal Court of Appeal has affirmed the Tax Court’s finding that an employee-controlled buyco acted as an “accommodation party” that allowed a key shareholder to use the capital gain exemption to strip out corporate surplus. As a result, section 84.1 applied to the sale instead. Turgeon v R, 2017 CAF 103, aff’g Poulin v R, 2016 TCC 154.