CRA states sale by 2 equal shareholders of 1/3 of each’s shares to a 3rd unrelated person might not entail an acquisition of control; similarly where 1 of 4 equal shareholders is redeemed

A, B and C were three unrelated individuals. A and B, who were the sole and equal (common) shareholders of Opco, each sold 1/3 of their shares to C, for FMV consideration.

Would a new group (A, B and C) be considered to have acquired control of Opco, or would CRA consider that the group formed by A and B still controlled the corporation?

CRA indicated:

• The CRA position is that the shareholders of a private corporation are rebuttably presumed to act in concert to control the corporation (the “control group presumption”).
• At the 1984 CTF Roundtable, Q.42, regarding the same situation, CRA indicated that the two original shareholders would still be in a position to control the corporation after the disposition of the shares, but that to the extent that the two original shareholders would cease to act in concert to control the corporation, the disposition of the shares could result in the acquisition of control of the corporation. CRA now further commented that that it would be reasonable to consider there to be an acquisition of control by a group of which C was a member if A or B withdrew from control of Opco and that this “could also be the case if, after the disposition of the shares, it was determined that A, B and C formed a group of persons that controls Opco.”

In another fact pattern, A to D (four unrelated individuals) each held 25% of the shares (being common shares) of Opco. Would the repurchase by Opco of D’s shares result in an acquisition of control of Opco?

CRA indicated that such repurchase would result in an acquisition of control by a group consisting of the three remaining shareholders unless the control group presumption could be rebutted by demonstrating, for instance, that control of Opco was exercised by the same group before and after (e.g., by the group consisting only of A to C).

Neal Armstrong. Summary of 10 October 2024 APFF Roundtable, Q.17 under s. 251.2(2)(a).