Income Tax Regulations — 5104
5104 (1) Notwithstanding paragraph (b) of the definition qualifying obligation in subsection 5100(1) and paragraphs 5101(1)(b), 5102(1)(f) and 5103(1)(d), the corporation, partnership or trust, as the case may be, may acquire a small business security that another person (other than a broker or dealer in securities) had previously acquired if (a) the small business security is a share of the capital stock of an eligible corporation having full voting rights under all circumstances; and (b) except where the share was acquired in specified circumstances within the meaning of subsection (2), the share was acquired from an officer or employee of the eligible corporation or a person related to the officer or employee. (2) For the purposes of this Part, (a) where a person acquires a share of a corporation (i) as part of a proposal to, or an arrangement with, the corporation’s creditors that has been approved by a court under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act , (ii) at a time when all or substantially all of the corporation’s assets were under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or (iii) at a time when, by reason of financial difficulty, the corporation was in default, or could reasonably be expected to default, on a debt obligation held by a person with whom the corporation was dealing at arm’s length, the person shall be deemed, at any time within 36 months after he acquired the share, to have acquired it in specified circumstances; (b) where a person acquires a share of a corporation for the purposes of facilitating the disposition of the entire investment of the person in the corporation, the person shall be deemed, at any time within 12 months after he acquired the share, to have acquired it in specified circumstances; and (c) a qualified trust (within the meaning assigned by subsection 259(3) of the Act) is deemed not to hold any property for any period in respect of which subsection 259(1) of the Act is applicable. (3) Where the purchaser of a property that, but for this subsection, would at the time of its acquisition be a small business security (or, where the purchaser is a partnership, a member thereof) knew at the time of acquisition that the issuer of the security would, within the immediately following 12 months, cease to qualify as an eligible corporation, the property shall be deemed never to have been a small business security of the purchaser. (4) Where a person who holds a share of or an interest in a corporation, partnership or trust that, but for this subsection, would be a small business investment corporation, small business investment limited partnership or small business investment trust knew at the time of issue of the share or interest, as the case may be, or at the time of making any contribution in respect of the share or interest, that (a) a substantial portion of (i) the consideration for the issue of the share or interest, or (ii) the contribution in respect of the share or interest would not be invested by the corporation, partnership or trust, as the case may be, directly or indirectly in small business securities, and (b) all or substantially all of (i) the consideration for the issue of the share or interest, or (ii) the contribution in respect of the share or interest would be returned to the purchaser within the immediately following 24 months, the corporation, partnership or trust shall be deemed to have ceased at that time to be a small business investment corporation, small business investment limited partnership or small business investment trust. (5) Where, but for this subsection, a property that qualified as a small business security when it was acquired would cease at a subsequent time to so qualify, the property shall be deemed to be a small business security for the 24 months immediately following the subsequent time. (6) For the purposes of this Part, a partnership shall be deemed to be a person