A butterfly transaction is a tax free method of dividing up assets in a corporation between shareholders who are going their separate ways. It can also be carried out by a single shareholder who has two different businesses in a corporation with a view to separating the divisions so that they are each in a separate corporation. It is called a butterfly reorganization because when drawn out the transaction has the look of a butterfly. Two winged butterflies and single winged butterflies refer to the detailed way in which the transaction is carried out. In essence the butterfly transactions consist of a series of tax free rollovers under section 85 of the Income Tax Act and cross redemptions of shares. A butterfly reorganization cannot be undertaken in contemplation of an arm's length sale. So in the case of a business with different divisions, if there is ever to be a sale of one of the divisions the butterfly division has to be done before any sale is being considered, otherwise it will not qualify.