CRA finds that an immediate right to elect a majority of the board is not necessary in order to have corporate control

CRA agreed that a corporation (the "Parent"), with a significant majority  of the shares of another corporation ("Lossco"), controlled Lossco notwithstanding that the Class B shares of  Parent did not have the right to vote on the election of the directors of Lossco, whereas the Class A shares of Lossco held mostly by an arm's length individual had full voting rights.  Accordingly, Lossco could be amalgamated with a "Profitco" subsidiary of Parent without the loss streaming rules applying to Lossco's losses.

The key to getting CRA to agree to this was that Parent's voting rights gave it the right to engage in a consolidation transaction in which the Class A shares would be cashed out, after which Parent as the holder of the only remaining class of shares would now have the right to elect the board.  For example, if Parent held 20M Class B shares and the other shareholders held 1M Class A shares and the shares were consolidated on a 2,000,000-for-1 basis, the fractions of shares now held by the other shareholders would be eliminated for a cash payment, and Parent would hold the 10 remaining outstanding shares.  Although more esoteric than the deferred rights of the majority shareholder in Donald Applicators to get rid of the full-voting shares in that case, the potential for this transaction was considered sufficient to give Parent control of Lossco.

Neal Armstrong.  Summary of 2012 Ruling 2011-0402571R3 under s. 251(2)(b).