Vina-Rug (Canada) Limited v. Minister of National Revenue, 68 DTC 5021, [1968] CTC 1, [1968] SCR 193

ABBOTT, J. (all concurring) :—The issue in this appeal is whether the appellant company was ‘‘associated’’ during the 1961 and 1962 taxation years with a second company, Strad- wick’s Limited, within the meaning ‘of Section 39 of the Income Tax Act, and as such not entitled to the lower tax rate on the first $35,000 of taxable income provided for in the section. Paragraph (b) of subsection (4) of Section 39 provides that two corporations are associated with each other in a taxation year if they are controlled by the same group of ‘persons. That subsection reads as follows :

39. (4) For the purpose of this section, one corporation is associated with another in a taxation year, if, at any time in the year,

(b) both of: the corporations v were controlled by the same person or group of persons.

In the relevant periods, the shareholders of Stradwick’s Lim- ited and their respective shareholdings were:

The shareholders of the appellant company and. the respective shareholdings were:

The position of the respondent is that the group consisting of John Stradwick, Jr., W. L. Stradwick and H. D. McGilvery controlled Stradwick 8 Limited and it is common ground between the parties to the appeal that if this group controlled Stradwick’s Limited, then it also controlled the appellant company. The appellant contends however that the said group did not control Stradwick’s Limited and that Stradwick’s Limited was controlled by a group consisting of John Stradwick, ‘Sr. John Stradwick, Jr., and W. L. Stradwick.

John Stradwick, Sr., is the father of John Stradwick, Jr., and W. L. Stradwick; H. D. McGilvery is a stranger in the tax sense. McGilvery became a shareholder in Stradwick’s Limited in 1950, but, prior to that time, had become a shareholder, with the Stradwicks, in two other companies the tax status of which is not in issue in this appeal. All three companies were engaged in the manufacture, wholesaling er retailing of floor and wall tile.

In 1956, John Stradwick, Jr., W. L. Stradwick, H. D. McGilvery and Stradwick’s Limited acquired control of a fourth company—the appellant Vina-Rug (Canada) Limited—which also manufactured floor coverings.

During the 1961 and 1962 taxation years, there was a common management and administration for all 'the four companies referred to, and in each of those years the appellant company paid Stradwick’ s Limited $5,000 for administrative services performed on its behalf.

John Stradwick, Jr., testified that the group of shareholders consisting of himself, his brother and his father in fact controlled Stradwick’s Limited. It is perhaps not without significance that McGilvery attended and voted at all shareholders’ and directors’ meetings of Stradwick’s Limited, during the relevant periods, at which all resolutions were passed unanimously. However, in the view which I take of the issue in this appeal these facts are irrelevant.

The learned trial judge held that John Stradwick, Jr., W. L: Stradwick and H. D. McGilvery, who collectively owned more than 50% of the shares of Stradwick’s Limited, had at all material times a sufficient common connection as to be in a position to exercise control over Stradwick’s Limited and therefore constituted a “‘group of persons’’ within the meaning of subsection (4) of Section 39 of the Income Tax Act. I am in agreement with that finding.

This Court considered the concept of ‘‘control’’ in M.N.R. v. Dworkin Furs Limited, [1967] S.C.R. 228; [1967] C.T.C. 50. Hall, J. in delivering the judgment of the Court said at p. 227 [p. 52] :

The word controlled as used in this subsection was held by Jackett, P. to mean de jure control and not de facto control and with this I agree. He said in Buckerfield’s Limited et al. v. M.N.R.:

“Many approaches might conceivably be adopted in applying the word ‘control’ in a statute such as the Income Tax Act to a corporation. It might, for example, refer to control by ‘management’, where management and the Board of Directors are separate, or it might refer to control by the Board of Directors. The kind of control exercised by management officials or the Board of Directors is, however, clearly not intended by Section 39 when it contemplates control of one corporation by another as well as control of a corporation by individuals (see subsection (6) of Section 39). The word ‘control’ might conceivably refer to de facto control by one or more shareholders whether or not they hold a majority of shares. I am of the view, however, that in Section 39 of the Income Tax Act, 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. See British American Tobacco Co. v. C.I.R., [1943] 1 All E.R. 18 where Viscount Simon, L.C., at p. 15 says:

‘The owners of the majority of the voting power in a company are the persons who are in effective control of its affairs and fortunes.’ ”

Applying these principles, once it is established that a group of shareholders owns a majority of the voting shares of a company, and the same group a majority of the voting shares of a second company, that fact is sufficient, in my opinion, to constitute the two companies associated within the provisions of Section 39 of the Income Tax Act. Moreover, in determining de jure control more than one group of persons can be aptly described as a “group of persons’? within the meaning of Section 39(4)(b). In my view, it is immaterial whether or not other combinations of shareholders may own a majority of voting shares in either company, provided each combination is in a position to control at least a majority of votes to be cast at a general meeting of shareholders.

I would dismiss the appeal with costs.