Pellerin – Tax Court of Canada finds that relatedness under the 24-month QSBC test need only be tested at the disposition time

Para. (b) of the "qualified small business corporation share" definition requires that "throughout the 24 months immediately preceding the [disposition] time, [the share] was not owned by anyone other than the [disposing] individual or a person or partnership related to the individual." Boyle J found that this test is applied by looking at whoever owned the share during the 24-month period and asking whether they were related at the time of the disposition, so that it does not matter whether they were related at the beginning of the 24 months. For example, if an individual sold her shares to an unrelated individual, and less than 24 months later they married and he sold the shares, the test would be satisfied (subject to a proviso (at para. 21) about "abusive tax avoidance stratagems"!)

The case concerned Mika Pellerin who, at approximately 18 months of age, received a distribution under s. 107(2) of small business corporation shares from the family trust and immediately sold them at a gain. S. 110.6(14)(c)(i) deems a beneficiary of a personal trust to be related to the trust. Boyle J found that under the Quebec general law, when Mika was born he was retroactively deemed to have been a trust beneficiary for his previous nine months as a fetus. However, given the above interpretation of the QSBC definition, this finding appears unnecessary to the conclusion that Mika enjoyed the capital gains exemption.

Neal Armstrong. Summary of Pellerin v. The Queen, 2015 CCI 130 under s. 110.6(1) - "qualified small business corporation share."