I am no tax expert, but I would be very surprised if the exchange of Freewest for Cliffs will not be deemed as a sale by CRA. So I think we will have to pay capital gains tax on the difference between the price we paid for the Freewest shares and the value of the Cliffs shares on the day of the exchange. So if you bought Freewest for 3,000.00 and the Cliffs shares were valued at 13,000.00, you would have to report a capital gain of 10,000.00 on your 2010 tax return. When you sell the Cliffs shares you would use the value of the Cliffs shares on the day of the exchange as your cost of shares to work out the capital gain on that transaction.

I will need to consult an expert to find out if my theory is true.