Lyrtech – Federal Court of Appeal confirms that a public company had de facto control of an alleged CCPC which was economically captive and which it essentially managed

Favreau J in the Tax Court had found that the contingent right of each of the beneficiaries of a discretionary trust to receive all the shares of a corporation (the taxpayer) held by the trustees was too nebulous to qualify as a right to acquire those shares for purposes of s. 251(5)(b).  However, that corporation was controlled de facto by the public corporation (Lyrtech) which was one of the discretionary beneficiaries (along with some Lyrtech subsidiaries), so that for that reason it did not qualify as a CCPC (and, therefore, was not eligible for enhanced SR&ED credits). In particular:

• the two individual trustees also were the key directors and officers of Lyrtech;
• the taxpayer had virtually no revenues, was under-capitalized, and depended on Lyrtech for financing; and
• Lyrtech determined what R&D work the taxpayer conducted.

This decision has been confirmed in the Federal Court of Appeal, which dealt only with the de facto control issue (with Scott JA noting that different persons can have the de facto and de jure control of a corporation in the face of a bold taxpayer argument to the contrary).

Neal Armstrong.  Summaries of Lyrtech v. The Queen, 2013 DTC 1147, 2013 TCC 12, aff'd 2014 CAF 267 under s. 256(5.1) and s. 251(5)(b).