2 November 1994 External T.I. 9418785 - SHAREHOLDER AGREEMENT AND REG 5100(1)

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.

Principal Issues: Whether a corporation meets paragraph (d) of the definition of "eligible corporation" in 5100(1) of the Regulations?

Position TAKEN: N/A

Reasons FOR POSITION TAKEN: Question of fact.

		941878
XXXXXXXXXX	M.P. Sarazin
(613) 957-8953

Attention: XXXXXXXXXX

November 2, 1994

Dear Sirs:

Re: Shareholders Agreement and Control

This is in reply to your letter dated July 11, 1994 wherein you requested our comments with regards to whether the particular corporation described in your letter would be considered controlled by one or more non-resident persons for the purposes of paragraph (d) of the definition of "eligible corporation" found within subsection 5100(1) of the Income Tax Regulations (the "Regulations").

You are of the view that the company would not be a corporation controlled by one or more non-resident persons for the purposes of paragraph (d) of the definition of "eligible corporation" found in subsection 5100(1) of the Regulations. Your conclusion is based on the decision rendered in International Iron & Metal Co. Ltd. v. M.N.R. 72 DTC 6205 (SCC) whereby the Court ruled that the right of control vests in the owners of the shares that provide the majority of the voting power in the corporation and shareholder agreements governing the voting rights associated with the particular shares are disregarded in the determination of control of a corporation.

Comments

It appears that your request for an opinion involves both specific taxpayers and completed transactions. Since the responsibility for determining the tax consequences arising from completed transactions rests with the district taxation offices, the appropriate district taxation office may, upon disclosure of all the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto.

Furthermore, due to the particular nature of the facts relating to your specific situation, we regret that we are unable to provide you with any meaningful comments which may be of assistance to you. For example, although the Courts have generally found that the word "controlled" contemplates the right of control that rests in ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the board of directors as set out by President Jackett in Buckerfield's Limited et al. v. M.N.R. (1965) 1 Ex.C.R. 299, at p.303, the decision rendered in Donald Applicators Ltd. et al v. M.N.R. 69 DTC 5122 (Ex. Ct.), affirmed by 71 DTC 5202 (SCC), provides an example of a situation where this general principle was found, on the basis of its particular facts, not to be conclusive.

We regret that our comments could not be of more assistance.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch