Estey,
J
(Beetz,
Chouinard
and
La
Forest,
JJ)
concurring):—Once
again
the
meaning
of
"control”
in
determining
the
tax
status
of
a
corporation
under
the
Income
Tax
Act
raises
its
head
in
this
Court.
Paragraph
39(4)(a)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended
by
SC
1960,
c
43,
s
11(1)
provides:
39(4)
.
.
.
one
corporation
is
associated
with
another
.
.
.
if
(a)
one
of
the
corporations
controlled
the
other
.
.
.
The
issue
is
simply,
what
is
the
applicable
rate
of
taxation
of
the
respondent?
This
in
turn
calls
for
a
determination
as
to
whether
the
respondent
is
associated
with
another
company
(Validor
Limited)
during
any
of
the
taxation
years
in
question.
Immediately
prior
to
the
December
1960
reorganization
discussed
below,
the
respondent
had
in
its
charter
but
one
class
of
shares
and
these
shares
were
issued
and
outstanding
as
follows:
The
Wingold
family
group:
|
90
shares
|
Meyer
Gasner:
|
10
shares
|
Gasner
was
unrelated
by
blood
or
marriage
to
the
Wingold
family.
He
was
a
friend
and
business
associate
of
one
member
of
that
family.
The
100
shares
then
outstanding
were
issued
from
treasury
for
the
consideration
of
$1,000
in
total.
In
December
1960,
the
respondent
received
by
way
of
supplementary
letters
patent
an
increase
in
authorized
capital
by
the
creation
of
10,000
voting,
non-participating,
cumulative
preference
shares
with
a
par
value
of
$1
each.
Eighty
of
the
newly
authorized
preference
shares
of
the
respondent
were
issued
from
treasury
to
Gasner
and
his
wife
for
a
total
consideration
of
$80.
Also
in
December
1960
the
Wingold
shares
(then
being
90
common
shares
of
the
respondent
were
transferred
to
Validor
Limited,
a
corporation
owned
and
controlled
by
the
Wingold
family.
As
a
result
of
these
transfers
and
issuances,
the
shareholdings
of
the
respondent
at
the
end
of
1960
were
as
follows:
Validor
(the
Wingold
family):
|
90
common
shares
|
(one
vote
per
share)
|
|
Meyer
Gasner:
|
10
common
shares
|
(one
vote
per
share)
|
|
Mr
and
Mrs
Gasner:
|
80
preference
shares
|
(one
vote
per
share)
|
|
In
the
result,
the
Wingold
group
held
common
shares
according
them
90
votes,
and
the
Gasners
held
10
common
shares
and
80
preference
shares
according
them,
in
all,
90
votes.
The
taxation
years
in
question
are
1962,
1963,
1966
and
1967.
The
shareholdings
and
voting
rights
in
the
respondent
during
those
years
were
as
set
out
above.
During
those
years
the
Board
of
Directors
of
the
respondent
consisted
of
four
directors.
Prior
to
December
1960
all
the
directors
were
members
of
the
Wingold
family.
From
December
1960
to
October
1968
two
of
the
four
directors
were
members
of
the
Wingold
family
and
the
other
two
were
Mr
and
Mrs
Gasner.
On
October
31,
1968,
after
the
fiscal
years
in
question,
all
the
Gasner
shares,
common
and
preference,
were
transferred
to
Validor,
the
preference
shares
being
transferred
for
a
total
consideration
of
$88
made
up
of
$80
par
value
and
$8
dividends.
The
holders
of
the
preference
shares
were
entitled
to
one
vote
per
share
and
to
a
fixed
cumulative
preferential
dividend
at
the
rate
of
10
per
cent
per
annum.
On
the
liquidation
or
winding
up
of
the
company,
the
holder
of
a
preference
share
was
entitled
to
recover
the
par
value
of
the
preference
share
and
any
accumulated
but
unpaid
dividends
in
priority
to
the
common
shares.
The
preference
shareholder,
however,
was
not
entitled
to
participate
in
the
distribution
of
any
surplus
in
the
corporation.
Perhaps
of
the
greatest
significance
is
the
further
provision
in
the
corporate
charter
of
the
respondent
that
the
company
may
be
wound
up
on
a
resolution
for
that
purpose
supported
by
50
per
cent
of
all
voting
rights
in
the
company.
The
effect
of
this
provision
is
that
either
the
Wingolds
(and
later,
Validor)
or
the
Gasners
could
bring
about
a
winding
up
of
the
respondent
without
cause.
Upon
the
happening
of
that
event,
the
Gasner
family
would
receive
the
par
value
of
their
preference
shares
and
any
accumulated
but
unpaid
dividends,
whereas
the
Wingolds,
and
Meyer
Gasner
to
the
extent
of
his
10
per
cent
holding
in
common
shares,
would
receive
all
the
remaining
assets
of
the
respondent.
The
significance
of
this
right
is
emphasized
by
the
fact
that
the
business
of
the
respondent
company
was
carried
on
by
the
Wingold
fmily
along
with
some
17
other
companies,
all
of
which
were
amalgamated
into
the
respondent
company
in
October
1968.
Thus
the
pain
normally
associated
with
corporate
liquidation
would
not
be
a
very
significant
factor
here
because
the
undertaking
carried
on
by
the
respondent
corporation,
less
the
10
per
cent
interest
to
be
paid
out
to
Meyer
Gasner,
would
remain
substantially
intact
and
within
the
orbit
of
the
Wingold
companies.
The
Gasners
on
the
other
hand,
by
a
liquidation
(apart
from
the
aforementioned
10
per
cent
common
share
interest
held
by
Meyer
Gasner),
would
receive
their
$80
investment
in
the
preference
shares
plus
any
accrued
but
unpaid
dividends
which,
in
fact,
never
exceeded
$8.
It
is
against
this
background
of
fact
that
we
turn
to
the
law.
The
single
issue
arising
on
the
facts
in
this
appeal
is
whether,
during
the
relevant
period
of
time,
Validor
controlled
the
respondent
for
the
purposes
of
subsection
39(4).
It
has
been
long
decided
that
for
the
purposes
of
this
section
of
the
Income
Tax
Act
“.
.
.
the
word
‘controlled’
contemplates
the
right
of
control
that
rests
in
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes
in
the
election
of
the
Board
of
Directors"";
per
Jackett
P
in
Buckerfield's
Limited
et
al
v
MNR,
[1965]
1
Ex
CR
299
at
303;
[1964]
CTC
504
at
507
which
was
adopted
by
this
Court
in
MNR
v
Dworkin
Furs
(Pembroke)
Limited
et
al,
[1967]
SCR
223
at
228;
[1967]
CTC
50
at
52-3
per
Hall,
J.
Mr
Justice
Hall
at
the
same
time
adopted
a
somewhat
broader
concept
of
control
from
British
American
Tobacco
Co
v
IRC
(1943),
1
AER
13,
at
15,
per
Viscount
Simon,
LC:
“The
owners
of
the
majority
of
the
voting
power
in
a
company
are
the
persons
who
are
in
effective
control
of
its
affairs
and
fortunes"'.
It
has
been
said
that
control
for
these
purposes
concerns
itself
with
de
jure
and
not
de
facto
considerations
(see
Buckerfield's
Limited,
supra,
at
302-3
(CTC
507)
and
Dworkin
supra,
at
227
(CTC
52).
Such
a
distinction,
while
convenient
to
express
as
a
guide
of
sorts
in
assessing
the
legal
consequences
in
factual
circumstances,
is
not,
as
we
shall
see,
an
entirely
accurate
description
of
the
processes
of
determination
of
the
presence
of
control
in
one
or
more
shareholders
for
the
purpose
of
subsection
39(4).
In
Dworkin,
supra,
the
Court
was
required
to
determine
the
applicable
tax
rate
for
several
corporations,
50
per
cent
of
whose
voting
shares
were
held
by
each
of
two
groups.
In
each
case
neither
group
had
the
right
to
wind
up
the
company
or
indeed
to
do
anything
else
with
reference
to
the
affairs
of
the
company
or
to
its
structure
without
the
support
of
the
voting
power
of
the
other
group.
In
some
instances
there
was
indeed
a
casting
vote
in
the
president
or
chairman,
but
we
are
not
concerned
with
that
problem
here
for
no
person
held
such
a
right.
The
Court
in
effect
found
that,
applying
the
Buckerfield
test,
none
of
these
corporations
were
controlled
for
the
purpose
of
subsection
39(4)
because
the
governing
authority
in
the
corporation
was
deadlocked
as
between
the
two
groups.
The
Buckerfield
test,
it
should
be
noted,
was
applied
by
Hall,
J
at
the
level
of
shareholders
and
not
directors
(Dworkin,
supra,
at
236).
In
Oakfield
Developments
(Toronto)
Limited
v
MNR,
[1971]
SCR
1032;
[1971]
CTC
283
the
court
was
faced
with
precisely
the
same
issue
as
in
Dworkin.
In
Oakfield
there
were
two
classes
of
shares,
common
and
preferred,
the
voting
rights
in
respect
of
which
were
equal.
One
group
held
all
the
common
shares
and
the
other
group
held
all
the
preferred
shares.
The
preferred
shareholders,
as
is
the
case
here,
had
a
priority
over
common
shareholders
to
the
extent
of
recovery
of
the
capital
represented
by
the
preferred
shares
on
a
winding
up,
together
with
accumulated
dividends,
and
a
10
per
cent
premium.
Similarly,
either
the
common
shareholders
or
the
preferred
shareholders
could,
acting
by
themselves
as
a
class,
bring
about
the
surrender
of
the
corporate
charter.
On
the
surrender,
the
residual
assets,
after
the
prior
repayment
of
capital
and
premium
and
accrued
dividends
to
the
preferred
shareholders,
went
to
the
common
shareholders.
There
was
no
question
but
that
the
holders
of
the
preferred
shares
were
unrelated
by
blood
or
marriage
to
the
holders
of
the
common
shares.
As
was
the
case
here,
the
preferred
shareholders
received
their
shares
some
years
after
the
corporation
was
established.
Again,
in
Oakfield,
supra,
there
was
no
Casting
vote
in
the
hands
of
any
officer
or
shareholder.
After
weighing
the
respective
voting
and
other
rights
of
the
common
and
preferred
shareholders,
Judson,
J,
speaking
for
a
unanimous
Court,
stated
at
1037
(CTC
286):
Their
[common
shareholders]
voting
power
was
sufficient
to
authorize
the
surrender
of
the
company's
letters
patent.
In
my
opinion,
these
circumstances
are
sufficient
to
vest
control
in
the
group
when
the
owners
of
non-participating
preferred
shares
hold
the
remaining
50
per
cent
of
the
voting
power.
In
determining
the
proper
application
of
subsection
39(4)
to
circumstances
before
a
court,
the
court
is
not
limited
to
a
highly
technical
and
narrow
interpretation
of
the
legal
rights
attached
to
the
shares
of
a
corporation.
Neither
is
the
court
constrained
to
examine
those
rights
in
the
context
only
of
their
immediate
application
in
a
corporate
meeting.
It
has
long
been
said
that
these
rights
must
be
assessed
in
their
impact
“over
the
long
run".
See
Thurlow,
J
in
Donald
Applicators
Ltd,
et
al
v
MNR,
[1969]
2
Ex
CR
43
at
51;
[1969]
CTC
98
at
105
affirmed
by
this
Court
at
[1971]
SCR
v;
[1971]
CTC
402.
Some
comfort
was
sought
by
the
respondent
here
in
the
judgment
in
Oakfield,
supra,
at
1037
(CTC
286)
where
Judson,
J
stated,
in
distinguishing
the
Dworkin
case,
supra:
.
.
.
the
voting
was
split
equally
between
two
groups
also,
but
there
was
only
one
class
of
shares.
Each
group
had
the
same
de
jure
rights,
and
each
shareholder
was
entitled
to
share
rateably
in
the
profits
and
assets
of
the
company
by
dividends
or
on
winding
up.
In
addition,
neither
group
could
itself
wind
up
the
company.
I
do
not
think
that
the
fulcrum
upon
which
that
case
turned
was
the
presence
of
two
classes
of
shares
in
Oakfield
as
against
only
one
class
in
Dworkin.
The
repeated
reference
by
Judson,
J
to
the
significance
of
the
final
omnipotent
right
to
wind
up
the
company
retained
by
the
prior
controlling
stockholder
was
the
bedrock
upon
which
the
Oakfield
judgment
was
founded.
When
the
Wingolds
purported
to
terminate
their
control
of
the
respondent
causing
the
respondent
to
issue
80
preference
shares
for
$80
to
the
10
per
cent
minority
shareholder
Gasners,
the
Wingolds
retained
one
central
critical
right,
which
they
then
passed
on
to
Validor,
namely
the
right,
should
their
interest
ever
require,
to
wind
up
the
respondent.
The
only
penalty
to
be
suffered
by
the
Wingolds,
and
later
Validor,
upon
such
a
wind-up
(in
addition
to
the
nominal
payments
on
return
of
capital
on
the
preference
shares
and
any
accrued
but
unpaid
dividends)
remained
a
10
per
cent
distribution
to
Meyer
Gasner
which
was
precisely
the
same
penalty
as
existed
prior
to
the
alleged
termination
of
the
Wingolds'
control.
As
in
Oakfield,
the
continued
existence,
after
the
1960
reorganization,
of
the
right
to
terminate
the
corporate
existence
should
the
presence
of
the
minority
common
and
preference
shareholders
become
undesirable
to
the
90
per
cent
common
stockholder,
Validor,
is,
in
my
view,
the
linchpin
of
the
tax
plan
introduced
following
the
1960
amendments
to
the
tax
statute.
Control,
in
the
real
sense
of
the
term,
was
not
surrendered
by
the
Wingolds
(and
their
successor,
Validor)
in
1960
upon
the
issuance
to
the
Gasner
group
of
$80
in
preference
shares.
Accordingly,
the
respondent
remains
controlled
by
Validor
within
the
meaning
of
the
term
as
it
is
employed
by
Parliament
in
subsection
39(4).
Counsel
for
the
respondent
argued
that
a
finding
on
the
facts
herein
that
Validor
controlled
the
respondent
would
amount
to
the
judicial
establishment
of
a
new
principle
of
law
which
would
be
substantially
identical
to
legislation
introduced
by
Parliament
in
the
United
Kingdom,
and
now
found
in
subsection
302(2)
of
the
Income
and
Corporation
Taxes
Act
1970
(UK
1970,
c
10),
as
amended.
That
subsection
provides:
302(2)
For
the
purposes
of
this
Chapter,
a
person
shall
be
taken
to
have
control
of
a
company
if
he
exercises,
or
is
able
to
exercise
or
is
entitled
to
acquire,
control,
whether
direct
or
indirect,
over
the
company’s
affairs,
and
in
particular,
but
without
prejudice
to
the
generality
of
the
preceding
words,
if
he
possesses
or
is
entitled
to
acquire—
(a)
the
greater
part
of
the
share
capital
or
issued
share
capital
of
the
company
or
of
the
voting
power
in
the
company;
or
(b)
such
part
of
the
issued
share
capital
of
the
company
as
would,
if
the
whole
of
the
income
of
the
company
were
in
fact
distributed
among
the
participators
(without
regard
to
any
rights
which
he
or
any
other
person
has
as
a
loan
creditor),
entitle
him
to
receive
the
greater
part
of
the
amount
so
distributed;
or
(c)
such
rights
as
would,
in
the
event
of
the
winding
up
of
the
company
or
in
any
other
circumstances,
entitle
him
to
receive
the
greater
part
of
the
assets
of
the
company
which
would
then
be
available
for
distribution
among
the
participators.
This
provision
is
much
broader
in
reach
than
the
principles
enunciated
with
respect
to
“control”
in
these
reasons.
Furthermore,
the
respondent
submits
that
this
legislation
was
enacted
by
the
UK
Parliament
to
replace
the
predecessor
provision,
in
response
to
the
decision
in
Himley
Estates
et
al
v
CIR
(1932),
17
TC
376
(CA).
This
may
have
been
the
case,
although
the
new
provision
first
appeared
more
than
30
years
after
that
judgment.
In
any
event,
no
such
situation
exists
in
the
Canadian
context.
The
approach
to
“control”
here
taken
does
not
involve
any
departure
from
prior
judicial
pronouncements
nor
does
it
involve
any
"alteration”
of
the
existing
statute.
The
conclusions
reached
above
merely
result
from
applying
existing
case
law
and
existing
legislation
to
the
particular
facts
of
the
case
at
bar.
The
application
of
the
"control”
concept,
as
earlier
enunciated
by
the
courts,
to
the
circumstances
now
before
the
court
is,
in
my
view,
the
ordinary
progression
of
the
judicial
process
and
in
no
way
amounts
to
a
transgression
of
the
territory
of
the
legislator.
We
were
also
invited
by
counsel
for
the
respondent
to
consider
other
combinations
of
share
interests
and
to
consider
those
combinations
in
the
light
of
varying
economic
circumstances
of
a
taxpayer.
We
are
here
concerned
only
with
the
corporate
structure
of
the
respondent
in
the
tax
years
in
question.
The
courts
will
deal
with
other
combinations
and
circumstances
if
and
when
those
circumstances
do
indeed
come
before
the
courts
in
future
appeals.
I
therefore
would
allow
the
appeal
and
would
restore
the
order
of
the
Tax
Review
Board
dismissing
the
appeals
of
the
respondent
from
income
tax
assessments
the
appeals
of
the
respondent
from
income
tax
assessments
in
respect
of
the
taxation
years
1962,
1963,
1966
and
1967,
with
costs
in
this
Court,
in
the
Federal
Court
of
Canada
—
Trial
Division
and
in
the
Federal
Court
of
Appeal
to
the
respondent.
Wilson,
J
(dissenting,
McIntyre
and
Lamer,
JJ
concurring):—This
case
raises
the
question
whether,
if
voting
control
of
a
company
is
equally
divided
between
two
groups
of
shareholders,
resort
may
be
had
to
other
indicia
in
order
to
determine
which
group
controls
a
company
within
the
meaning
of
subsection
39(4)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended
by
SC
1960,
c
43,
s
11(1).
If
such
resort
is
permitted,
what
other
indicia
are
relevant?
There
is
no
doubt
that
up
until
the
decision
of
this
Court
in
Oakfield
Developments
(Toronto)
Limited
v
MNR,
[971]
SCR
1032;
[1971]
CTC
283
voting
control
was
the
determining
factor
and,
if
such
control
were
equally
divided,
no
one
group
of
shareholders
controlled
the
company:
see
Buck-
erfields
Limited
et
al
v
MNR,
[1965]
1
Ex
CR
299;
[1964]
CTC
504;
MNR
v
Dworkin
Furs
(Pembroke)
Ltd
et
al
[1967]
SCR
223;
[1967]
CTC
50.
In
my
view
Oakfield
departed
from
that.
The
Court,
in
effect,
found
that,
voting
control
being
equally
divided,
control
lay
in
the
hands
of
the
group
having
the
greater
de
jure
rights,
in
that
case
greater
participation
in
the
assets
on
a
winding-up.
It
seems
to
me
that
since
either
group
in
Oakfield
could
bring
about
a
winding-up
of
the
company,
that
particular
right
could
not
per
se
be
determinative.
What
was
determinative
was
the
Court's
assumption
that
the
group
entitled
to
greater
participation
on
the
winding-up
would
be
more
likely
to
bring
it
about.
It
could,
in
other
words,
dissolve
the
com-
pany,
rid
itself
of
the
other
group,
and
retrieve
the
substantial
part
of
the
assets.
For
these
reasons
it
was
likely
to
be
the
group
which
would
in
fact
wind
up
the
company
if
and
when
it
considered
it
in
its
best
interests
to
do
so.
It
seems
to
me
that
in
Oakfield
the
Court
moved
from
de
jure
to
de
facto
control
when
de
jure
control
did
not
provide
an
answer.
The
greater
de
jure
rights
on
the
winding-up
was
the
basis
of
the
finding
of
de
facto
control.
In
his
reasons
for
judgment
in
the
Federal
Court
of
Appeal
Le
Dain,
J
tried
to
identify
the
precise
rationale
of
Oakfield.
He
found
that
it
represented
a
departure
from
prior
authority
and
I
agree
with
him.
He
sought
therefore
to
confine
its
application
strictly
to
situations
where
one
group
of
shareholders
holds
all
the
shares
having
the
greater
de
jure
rights.
It
seems
to
me,
however,
that
Judson,
J
distinguished
Dworkin
Furs
on
the
basis
that
each
group
had
the
same
de
jure
rights
and
neither
could
by
itself
wind
up
the
company.
It
was,
in
other
words,
a
complete
deadlock
and
there
was
no
basis
at
all
on
which
one
group
could
be
distinguished
from
the
other
in
terms
of
control,
de
jure
or
de
facto.
In
my
view,
Oakfield
stands
for
the
proposition
that,
when
voting
control
is
evenly
divided,
the
other
rights
attaching
to
the
shares
held
by
the
two
groups
mnust
be
examined
to
see
if
they
provide
a
basis
for
attributing
de
facto
control
to
one
group
rather
than
the
other,
whatever
the
breakdown
of
share
ownership
by
the
two
groups
may
be.
Such
control
was
inferred
in
Oakfield
from
the
fact
of
greater
participation
by
one
group
on
a
winding-up
but
I
see
no
logical
reason
why
the
principle,
if
adopted,
would
not
apply
in
other
circumstances.
That
Oakfield
represents
a
significant
departure
from
earlier
authority
is,
I
think,
clear
from
a
review
of
the
cases.
In
Vancouver
Towing
Company
Ltd
v
MNR,
[1946]
Ex
CR
623;
[1947]
CTC
18
the
appellant
argued
that
the
parent
company
did
not
have
a
controlling
interest
in
its
subsidiary
because
of
a
management
arrangement
with
one
Jones
who
was
appointed
Managing
Director
under
the
Articles
of
Association
and
given
“absolute
and
sole
authority
to
exercise
all
the
powers,
authorities
and
discretion”
of
the
directors.
The
appellant
argued
that
Jones
and
not
the
parent
company
controlled
the
company.
The
Exchequer
Court
of
Canada,
relying
on
two
leading
English
cases,
British
American
Tobacco
Co
v
CIR,
[1943]
1
All
ER
13
(HL)
and
IRC
v
J
Bibby
&
Sons
Ltd,
[1945]
1
All
ER
667
(HL)
rejected
this
submission
on
the
ground
that
the
expression
“controlling
interest”
meant
“having
a
shareholding
in
the
company
sufficient
to
out-vote
all
other
shareholders
put
together
in
a
general
meeting
of
the
company”.
Both
the
English
cases
relied
on
in
Vancouver
Towing
dealt
with
the
meaning
of
the
expression
“controlling
interest”
in
the
context
of
the
Finance
Act
of
the
United
Kingdom.
However,
it
is
clear
from
the
judgments
that
the
controlling
interest
was
held
to
be
the
interest
of
the
persons
who
“controlled”
the
company's
affairs
and
that
those
persons
were
held
in
both
cases
to
be
the
persons
who,
having
the
requisite
voting
power,
could
decide
how
the
business
of
the
company
was
to
be
carried
on.
Viscount
Simon
in
British
American
Tobacco
concluded
at
25
that:
“The
owners
of
the
majority
of
the
voting
power
in
a
company
are
the
persons
who
are
in
effective
control
of
its
affairs
and
fortunes”.
Lord
Russell
of
Killowen
expressed
the
same
view
in
Bibby
at
669:
When
the
section
speaks
of
directors
having
a
controlling
interest
in
a
company,
what
it
is
immediately
concerned
with
in
using
the
words
“controlling
inter-
est”
is
not
the
extent
to
which
the
individuals
are
beneficially
interested
in
the
profits
of
the
company
as
a
going
concern
or
in
the
surplus
assets
in
a
winding
up,
but
the
extent
to
which
they
have
vested
in
them
the
power
of
controlling
by
votes
the
decisions
which
will
bind
the
company
in
the
shape
of
resolutions
passed
by
the
shareholders
in
general
meeting.
In
other
words,
the
test
which
is
to
exclude
a
company’s
business
from
subsect
(9)(a)
and
include
it
in
(9)(b),
is
the
voting
power
of
its
directors,
not
their
beneficial
interest
in
the
company.
For
the
purpose
of
such
a
test
the
fact
that
a
vote-carrying
share
is
vested
in
a
director
as
trustee
seems
immaterial.
The
power
is
there,
and
though
it
be
exercised
in
breach
of
trust
or
even
in
breach
of
an
injunction,
the
vote
would
be
validly
cast
vis-a-vis
the
company,
and
the
resolution
until
rescinded
would
be
binding
on
it.
The
contention
that
upon
the
wording
of
sect
13
the
interest
must
be
confined
to
beneficial
interests
appears
to
me
to
be
but
a
repetition
of
the
argument
which
was
rejected
by
this
House
in
the
case
of
British
American
Co
v
CIR
in
relation
to
National
Defence
Contribution
and
the
Finance
Act,
1937.
Lord
Macmillan
agreed
with
Lord
Russell
of
Killowen,
stating
at
670:
The
control
of
a
company
resides
in
the
voting
power
of
its
shareholders.
In
the
respondent
company
the
ordinary
shares
alone
confer
a
right
to
vote
at
a
general
meeting.
The
directors
are
the
registered
proprietors
of
a
majority
of
the
ordinary
shares.
It
would,
therefore,
appear
to
follow
that
the
directors
have
a
controlling
interest
in
the
company.
And
so
did
Lord
Simonds
who
said
at
672-73:
What,
my
Lords,
constitutes
a
controlling
interest
in
a
company?
It
is
the
power
by
the
exercise
of
voting
rights
to
carry
a
resolution
at
a
general
meeting
of
the
company.
Can
the
directors
of
the
respondent
company
by
the
exercise
of
their
voting
rights
carry
such
a
resolution?
Yes:
for
they
are
the
registered
holders
of
more
than
half
the
ordinary
shares
of
the
company.
Therefore
they
have
a
controlling
interest
in
the
company.
From
this
result
the
Crown
seeks
an
escape
by
the
contention
that
shares
held
by
a
director
as
trustee
should
not
be
included
for
the
purpose
of
computing
the
controlling
interest.
In
the
appellants’
argument
in
this
House
and
in
their
formal
reasons
this
absolute
veto
is
qualified
by
the
suggestion
that,
if
the
director
has
not
only
the
legal
ownership
of
shares
but
also
a
predominating
beneficial
interest
in
them,
they
may
be
brought
into
the
count.
My
Lords,
in
my
opinion
the
Crown's
contention
cannot
be
sustained.
Those
who
by
their
votes
can
control
the
company
do
not
the
less
control
it
because
they
may
themselves
be
amenable
to
some
external
control.
Theirs
is
the
control,
though
in
the
exercise
of
its
they
may
be
guilty
of
some
breach
of
obligation
whether
of
conscience
or
of
law.
It
is
impossible
(an
impossibility
long
recognised
in
company
law)
to
enter
into
an
investigation
whether
the
registered
holder
of
a
share
is
to
any
and
what
extent
the
beneficial
owner.
A
clean
cut
there
must
be.
In
Buckerfields
Ltd
et
al
v
MNR
(supra)
Jackett,
P
dealt
with
a
challenge
to
an
assessment
based
on
a
finding
that
several
corporations
were
“associated”
under
section
39
of
the
Income
Tax
Act.
Jackett,
P
considered
paragraph
39(4)(b)
and
commented
at
302-03:
Many
approaches
might
conceivably
be
adopted
in
applying
the
word
“control”
in
a
statute
such
as
the
Income
Tax
Act
to
a
corporation.
It
might,
for
example,
refer
to
control
by
“management”,
where
management
and
the
Board
of
Directors
are
separate,
or
it
might
refer
to
control
by
the
Board
of
Directors.
The
kind
of
control
exercised
by
management
officials
or
the
Board
of
Directors
is,
however,
clearly
not
intended
by
section
39
when
it
contemplates
control
of
one
corporation
by
another
as
well
as
control
of
a
corporation
by
individuals
(see
subsection
(6)
of
section
39).
The
word
“control”
might
conceivably
refer
to
de
facto
control
by
one
or
more
shareholders
whether
or
not
they
hold
a
majority
of
shares.
I
am
of
the
view,
however,
that,
in
section
39
of
the
Income
Tax
Act,
the
word
“controlled”
contemplates
the
right
of
control
that
rests
in
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes
in
the
election
of
the
Board
of
Directors.
See
British
American
Tobacco
Co
v
IRC
where
Viscount
Simon
LC,
at
page
15
says:
The
owners
of
the
majority
of
the
voting
power
in
a
company
are
the
persons
who
are
in
effective
control
of
its
affairs
and
fortunes.
See
also
Minister
of
National
Revenue
v
Wrights'
Canadian
Ropes
Ld
per
Lord
Greene
MR
at
page
118,
where
it
was
held
that
the
mere
fact
that
one
corporation
had
less
than
50
per
cent
of
the
shares
of
another
was
“conclusive”
that
the
one
corporation
was
not
“controlled”
by
the
other
within
section
6
of
the
Income
War
Tax
Act.
In
Vineland
Quarries
&
Crushed
Stone
Ltd
v
MNR,
[1966]
CTC
69;
66
DTC
5092
(Ex
Ct)
Cattanach,
J
considered
whether,
when
making
a
determination
of
de
jure
control
under
paragraph
39(4)(b),
the
Court
could
“look
through”
the
corporate
names
on
the
register
to
find
out
who
actually
controlled
voting
power.
In
that
case
half
the
shares
of
the
appellant
company
were
owned
by
one
Sauder
and
the
other
half
by
Bold
Investments,
all
of
the
shares
of
which
were
owned
by
one
Thornborrow.
Half
the
shares
of
the
Sauder
and
Thornborrow
Company
were
owned
by
Thornborrow
and
the
other
half
by
the
McMaster
Company,
all
of
the
shares
of
which
were
owned
by
Sauder.
The
shares
of
the
Verben
Company
were
held
half
by
Sauder
and
half
by
Thornborrow.
The
Minister
assessed
the
appellant
company,
The
Sauder
and
Thornborrow
Company
and
Verben
as
associated
corporations
on
the
basis
that
all
three
companies
were
controlled
by
the
same
group
of
persons,
namely
Sauder
and
Thornborrow.
The
appellant’s
appeal
was
dismissed.
Cattanach,
J
noted
that
in
Bibby
and
British
American
Tobacco
Ltd
the
test
of
beneficial
ownership
had
been
rejected
and
concluded
at
82-3
(DTC
5098):
In
my
view
the
word
“controlled”
in
section
39(4)(b)
contemplates
and
includes
such
a
relationship
as,
in
fact,
brings
about
a
control
by
virtue
of
majority
voting
power,
no
matter
how
that
result
is
effected,
that
is,
either
directly
or
indirectly.
It
would
seem
pointless
to
me
to
call
a
halt
on
finding
in
the
share
register
of
the
appellant
company
and
the
share
register
of
Sauder
and
Thornborrow
Limited
that
in
each
instance
50%
of
the
shares
are
held
respectively
by
Bold
Investments
(Hamilton)
Limited
and
McMaster
Investments
Limited
when
an
examination
of
the
share
register
of
Bold
Investments
(Hamilton)
Limited
and
McMaster
Investments
Limited
reveals
that
all
(or
nearly
all)
the
shares
in
those
companies
are
held
by
Vernon
Thornborrow
and
Benjamin
Sauder
respectively.
On
the
authority
of
the
British
American
Tobacco
case,
I
do
not
think
it
is
appropriate
to
end
the
inquiry
after
looking
at
the
share
registers
of
the
appellant
and
Sauder
and
Thornborrow
Limited.
It
is
proper
and
necessary
to
look
at
the
share
registers
of
Bold
Investments
(Hamilton)
Limited
and
Sauder
and
Thornborrow
Limited
to
obtain
an
answer
to
the
inquiry
whether
the
appellant
and
the
two
other
companies
are
controlled
by
the
same
“group
of
persons”.
Where
the
registered
shareholder
in
the
first
instance
is
a
body
corporate,
you
must
look
beyond
the
share
register.
The
reasoning
in
Buckerfields
was
approved
and
applied
by
this
Court
in
Dworkin
Furs
(supra).
The
issue
in
Dworkin
Furs
was
whether
five
companies
were
"associated”
under
section
39
of
the
Income
Tax
Act
1952
in
that
all
were
"controlled”
by
a
specified
group
or
person
under
paragraph
39(4)(a).
Hall,
J
writing
for
this
Court
held
at
227-28
(CTC
52-3):
The
word
controlled
as
used
in
this
subsection
was
held
by
Jackett
P
to
mean
de
jure
control
and
not
de
facto
control
and
with
this
I
agree.
He
said
in
Bucker-
field's
Limited
et
al
v
Minister
of
National
Revenue:
“Many
approaches
might
conceivably
be
adopted
in
applying
the
word
‘control’
in
a
statute
such
as
the
Income
Tax
Act
to
a
corporation.
It
might,
for
example,
refer
to
control
by
‘management’
where
management
and
the
Board
of
Directors
are
separate,
or
it
might
refer
to
control
by
the
Board
of
Directors.
The
kind
of
control
exercised
by
management
officials
or
the
Board
of
Directors
is,
however,
clearly
not
intended
by
section
39
when
it
contemplates
control
of
one
corporation
by
another
as
well
as
control
of
a
corporation
by
individuals
(see
subsection
(6)
of
section
39).
The
word
""control"’
might
conceivably
refer
to
de
facto
control
by
one
or
more
shareholders
whether
or
not
they
hold
a
majority
of
shares.
I
am
of
the
view,
however,
that,
in
section
39
of
the
Income
Tax
Act,
the
word
""controlled""
contemplates
the
right
of
control
that
rests
in
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes
in
the
election
of
the
Board
of
Directors.
See
British
American
Tobacco
Co
v
IRC
(1943)
1
AER
13
where
Viscount
Simon
LC,
at
p
15,
says:
"The
owners
of
the
majority
of
the
voting
power
in
a
company
are
the
persons
who
are
in
effective
control
of
its
affairs
and
fortunes.’
See
also
Minister
of
National
Revenue
v
Wrights’
Canada
Ropes
Ltd
(1947)
AC
109
per
Lord
Greene
MR
at
page
118,
where
it
was
held
that
the
mere
fact
that
one
corporation
had
less
than
50
per
cent
of
the
shares
of
another
was
‘conclusive’
that
the
one
corporation
was
not
"controlled"
by
the
other
within
section
6
of
the
Income
War
Tax
Act.”
This
definition
of
controlled
applies
to
all
five
appeals.
In
Dworkin
Furs
(Pembroke)
Limited,
Dworkin
Furs
Ltd
owned
48
per
cent
of
the
issued
shares
in
its
own
name
and
2
per
cent
in
the
names
of
Roy
Saipe
and
Helen
Saipe
and
its
nominees.
The
other
50
per
cent
were
owned
by
one
Sadie
Harris.
Roy
Saipe
was
President
of
this
respondent,
but
the
By-laws
of
the
company
provided
that
in
the
event
of
an
equality
of
votes,
the
Chairman
did
not
have
a
casting
vote.
It
is
clear
in
the
light
of
Buckerfield
that
in
these
circumstances
Dworkin
Furs
(Pembroke)
Limited
was
not
controlled
by
Dworkin
Furs
Ltd.
Hall,
J
noted
with
respect
to
one
of
the
corporations
that
an
arrangement
between
two
50
per
cent
shareholders
would
give
one
of
them
de
facto
control.
As
to
this
he
said
at
229
(CTC
54):
The
arrangement
or
agreement
between
Wagenaar
and
Jager,
while
it
might
be
said
to
give
Wagenaar
de
facto
control,
did
not
give
him
de
jure
control,
which
is
the
true
test,
.
.
.
.
Dworkin
Furs
with
its
emphasis
on
de
jure
control
as
the
test
under
subsection
39(4)
was
followed
by
this
Court
in
Vina-Rug
Canada
Ltd
v
MNR,
[1968]
SCR
193;
[1968]
CTC
1
(per
Abbott,
J).
In
MNR
v
Consolidated
Holding
Company
Ltd,
[1972]
CTC
18;
72
DTC
6007
Judson,
J
writing
for
the
majority
of
this
Court
applied
Vina-Rug
going
beyond
the
share
register
to
determine
who
had
voting
control.
Spence,
J
dissenting
would
have
confined
the
Court's
scrutiny
to
the
share
register
as
..
.
the
sole
basis
upon
which
the
voting
rights
of
shares
can
be
determined
and
therefore,
the
sole
basis
for
deciding
who
controls
a
company
.
.
(CTC
26;
DTC
6013).
In
Donald
Applicators
Ltd
v
MNR,
[1969]
CTC
98;
69
DTC
5122
(affirmed
SCC
[1971]
CTC
402;
71
DTC
5202),
the
Exchequer
Court,
in
interpreting
the
words
"one
of
the
corporations
controlled
the
other"",
concluded
that
even
although
a
shareholder
might
not
have
the
immediate
voting
power
to
elect
directors,
if
he
has
sufficient
voting
power
to
pass
any
ordinary
resolution
of
shareholders,
to
take
away
powers
of
directors
and
reserve
decisions
to
his
class
of
shareholders,
to
dismiss
directors
from
office
and
ultimately
to
secure
the
right
to
elect
directors,
then
he
has
legal
control
of
the
corpo
ration.
Thurlow,
J
expressly
rejected
the
use
of
a
de
facto
control
test
at
102-3
(DTC
5124-25):
I
can
deal
with
the
alternative
submission
by
saying
that
in
my
opinion
de
facto
control
is
not
to
be
taken
into
account,
that
de
jure
control
is
what
is
contemplated
by
the
statute
and
that
in
determining
association
for
the
purposes
of
the
statute
control
itself
and
not
some
mere
element
or
fragment
of
it
is
required
to
support
a
conclusion
that
corporations
are
in
fact
associated.
This
submission,
in
my
opinion,
accordingly
fails.
“The
statement
of
the
President
of
this
Court
in
Buckerfield's
case,
(1965)
1
Ex
CR
299
at
page
303;
[1964]
CTC
504
at
507,
when
he
said
‘I
am
of
the
view,
however,
that
in
section
39
of
the
Income
Tax
Act,
the
word
“controlled”
contemplates
the
right
that
rests
in
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes
in
the
election
of
the
board
of
directors’
should,
I
think,
be
read
and
understood
as
applying
to
a
case
where
the
directors
when
elected
have
the
usual
powers
of
directors
to
guide
the
destinies
of
the
company.”
The
concept
of
corporate
persona
and
the
fact
that
shareholders
have
no
proprietary
interest
in
the
assets
of
corporations
until
a
winding-up
of
the
enterprise
has,
I
believe,
led
the
courts
to
favour
de
jure
rather
than
de
facto
control.
The
distinction
between
ownership
and
control
of
an
operating
corporate
personality
has
been
maintained.
As
pointed
out
by
Cattan-
ach,
J
in
Vineland
Quarries
(supra),
at
78
(DTC
5096):
I
am
not
here
concerned
with
the
proposition
that
a
corporation
is
a
distinct
legal
entity
separate
from
its
shareholders,
nor
with
any
question
of
corporate
capacity
or
power.
I
readily
accept
the
undisputed
proposition
that
no
shareholder,
even
though
he
holds
all
the
shares
in
a
corporation,
has
any
property,
legal
or
equitable,
in
the
assets
of
the
corporation
and
the
proposition
that
a
corporation
is
not,
as
such,
the
agent
or
trustee
for
its
shareholders.
The
question
here
is
who
“controlled”
the
appellant
and
Sauder
and
Thornborrow
Limited.
Is
it
Benjamin
Sauder
and
Vernon
Thornborrow,
or
is
it
Benjamin
Sauder
and
Bold
Investment
(Hamilton)
Limited
and
Vernon
Thornborrow
and
McMaster
Investments
Limited.
Although
the
scope
of
scrutiny
under
the
de
jure
test
has
been
extended
beyond
a
mere
examination
of
the
share
register
in
order
to
determine
who
really
has
voting
control,
there
has
been
no
deviation
from
the
principle
that
voting
control
is
the
proper
indicium
of
control
until
Oakfield.
I
am
of
the
view,
therefore,
that
the
decision
in
Oakfield
is
anomalous
and
should
not
be
followed.
For
the
courts
suddenly
to
change
direction
in
face
of
well-settled
and
long-standing
authority
in
our
tax
jurisprudence
is,
in
my
view,
quite
inappropriate.
If
the
legislature
wishes
to
amend
the
legislation
as
was
done
in
the
United
Kingdom
to
discourage
the
kind
of
tax
planning
which
was
done
here,
it
is,
of
course,
perfectly
free
to
do
so.
But
I
do
not
think
that
this
is
a
suitable
area
for
judicial
creativity.
People
plan
their
personal
and
business
affairs
on
the
basis
of
the
existing
law
and
they
are
entitled
to
do
so.
It
is,
I
believe,
important
to
recognize
that
any
sudden
departure
by
the
courts
from
a
well-settled
line
of
authority
in
an
area
such
as
tax
law
can
have
a
serious
retroactive
impact
on
the
taxpayer.
Quite
apart
from
considerations
of
equity
and
fairness,
I
believe
that
the
respondent
makes
a
very
valid
point
that
a
test
of
de
facto
control
based
on
an
evaluation
of
de
jure
rights
in
different
corporate
contexts
and
under
different
economic
and
business
conditions
is
fraught
with
uncertainty.
Indeed,
it
seems
perfectly
conceivable
to
me
that,
if
such
a
test
were
adopted,
de
facto
control
could
move
from
one
group
of
shareholders
to
another
depending
upon
the
condition
of
the
company
from
time
to
time.
I
would
dismiss
the
appeal
with
costs.
Appeal
allowed.