Numerous corporate income tax provisions depend on whether several steps are separate or constitute a “series of transactions.” In October 2005 the Supreme Court of Canada weighed in on this issue.

Suppose Vendor owns all the shares of Targetco. Targetco has two assets, A and B. Purchaser buys the shares of Targetco from Vendor. Purchaser then causes Targetco to do a single-wing butterfly to divest itself of asset A. Purchaser will cause Newco to be incorporated. Purchaser will transfer shares of Targetco to Newco for Newco shares. Targetco will roll asset A to Targetco for shares. Targetco and Newco will then cross-redeem their shares.

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