Colmvest – Tax Court of Canada finds that a minority shareholder could not use the ETA s. 186(1) rule to access ITCs

Colmvest, which was the 25% shareholder of a corporation (“443307”), incurred legal fees in an arbitration between it and the 75% shareholder (“QF,” which was owned by an individual unrelated to Colmvest’s shareholder) regarding dividend distributions by 443307. Colmvest claimed ITCs relating to the legal fees in reliance on ETA s. 186(1), which required inter alia that Colmvest be “related” to 443307 by virtue of ITA ss. 251(2) to (6).

In finding that Colmvest was not so related to 443307, so that its ITC claims were properly denied, Graham J indicated that:

• QF, not Colmvest, prima facie had de jure control of 443307.
• Although there was a unanimous shareholders’ agreement, “[i]t appear[ed] that none of the governance provisions requiring unanimous consent was ever followed,” so that it was unnecessary to consider what effect those provisions would have on the control of 443307. (It is not at all apparent what difference this would have made even if he had considered those clauses.)
• The referenced phrase in s. 256(5.1) was not used in ss. 251(2) to (6), so that it was unnecessary to consider whether Colmvest had de facto control of 443307.

Neal Armstrong. Summary of Colmvest Holdings Corporation v. The Queen, 2022 TCC 70 under ETA s. 186(1).