CRA finds that two 50% shareholders of two corporations likely acting in concert to produce connectedness

The common shares of X Corp. and Y Corp were held equally by two unrelated corporations. Whether Y Corp. was connected to X Corp. - so that a deemed dividend arising on the redemption by Y Corp. of non-voting redeemable preferred shares held by X Corp. would not be subject to Part IV tax under s. 186(1)(a) - turned on whether the two shareholder corporations were not dealing at arm's length with X Corp. In finding that this was likely the case, CRA applied the presumption in Folio S1-F5-C1 that:

In the case of a closely-held corporation (for example, where there are two or three unrelated shareholders, none of which individually controls the corporation) the CRA considers that there is a presumption that the shareholders of such a closely-held corporation will act together to control the corporation. In order to rebut this presumption, it would be necessary to show that no one is controlling the corporation and that the decision-making process in the corporation is effectively deadlocked.

Neal Armstrong. Summary of 11 October 2019 APFF Roundtable, Q.12 under s. 186(2).