CRA finds that a USA stripped away voting control of a parent over its wholly-owned subs

All the shareholders of a corporation entered into a unanimous shareholders agreement (USA) that stripped away all the management powers of the board of the corporation, with all those powers instead exercised by majority vote of the shareholders. CRA accepted that included in the powers taken away from the corporation’s board under the USA was the right to exercise the voting rights attached to the shares of the wholly-owned subsidiaries of the corporation.

In CRA’s view, this then engaged ETA s. 128(4), which provides that for qualifying voting control purposes, a person is not considered to own shares if another person (other than a closely-related person) has voting rights over those shares described in similar terms to ITA s. 251(5)((b)(i), e.g., a “right under a contract … to control the voting rights attached to the share.” Since the corporation (which was not closely related to any of its shareholders) thus was deemed not to have voting control of its subsidiaries, they were not closely related to it.

Neal Armstrong. Summary of 18 March 2019 GST/HST Interpretation 186839 under ETA s. 128(4).