Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Subject: SHAREHOLDER AGREEMENT - RELATIONSHIP OF SHAREHOLDERS Section(s): 55(3)(a)]
ROUND TABLE - CGA - JANUARY 10, 1992
Officer: P Diguer
File: 7-912214
QUESTION #9
In a situation similar to that described in the previous question, A and B have a shareholder agreement with respect to A Ltd that includes clauses that meet the description in paragraph 251(5)(b) of the Act (for example, obligation to buy and sell if certain events occur, such as withdrawal from the business): this agreement is extended to cover ownership of the shares of B Ltd. A and B are thus deemed to be related to each corporation and the exception in subsection 55(3) of the Act applies. Would the Department agree with this conclusion if the clauses of the agreement are not covered by the position adopted in IT-84R2?
ANSWER
We are of the opinion that the exception in paragraph 55(3)(a) of the Act may indeed be applicable. A Ltd and B Ltd are both controlled by the same group of persons (A and B). They are therefore related by virtue of subparagraph 251(2)(c)(i) of the Act. The effect of this is to make applicable subparagraph 55(3)(a)(i) of the Act, thereby preventing the application of subsection 55(2)of the Act. Moreover, it appears that the exception provided in subparagraph 55(3)(a)(ii) of the Act may also apply to prevent the application of subsection 55(2) of the Act in this type of situation, subject to subsection 55(4) of the Act. A and B could be related to A Ltd by virtue of subparagraph 251(2)(b)(i) of the Act given the right referred to in paragraph 251(5)(b) of the Act and therefore the significant increase in B Ltd would not be an event described in subparagraph 55(3)(a)(ii) of the Act.
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