A crystallization years earlier does not just use up exemption room. It can also quietly reduce the cost base a later transfer relies on.
Short answer
Not on the same underlying value. Where a share was acquired non-arm’s-length after 1971, paragraph 84.1(2)(a.1) reduces its adjusted cost base by any prior amount claimed under section 110.6 — “such lesser amount as is established by the taxpayer to be the amount in respect of which a deduction under section 110.6 was claimed” — so a later non-arm’s-length sale of shares substituted for the crystallized ones has less room left to shelter, not the same room twice.
Paragraph 84.1(2)(a.1) is not a rule about how much exemption room remains available across taxation years — it is a permanent haircut to the specific share’s cost base, carried forward through any later substitution, that exists specifically so a family cannot re-crystallize the same increase in value a second time on a later related-party transaction.
A different, older mechanism applies to shares acquired before 1972: paragraph 84.1(2)(a) substitutes a valuation-day cost base computed under the Income Tax Application Rules rather than reducing an ordinary adjusted cost base. Whether a family holding predates 1972 changes which subparagraph of section 84.1(2) actually computes the cost base on a later non-arm’s-length transfer.
One file shows the trap sitting not in the transaction that failed, but in a crystallization everyone had already forgotten about years earlier. Its companion runs the same internal-transfer pattern where the shares were never crystallized at all, because they predate 1972 and a different computation applies.
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