Kruger Wayagamack – Federal Court of Appeal affirms Tax Court’s decision without addressing any distinction between operating and strategic control

In the Tax Court, Jorré J found that Kruger Inc. did not have de jure or de facto control of a corporation - notwithstanding that it was the 51% shareholder and was entitled under the unanimous shareholders agreement with the 49% shareholder (SGF) to appoint three of the five directors. – on the basis that such a wide range of decisions were specified in the USA to require unanimous director (or shareholder) approval that Kruger had control only of operating, and not strategic, decisions.

However, he went on to find that the corporation was associated with Kruger under s. 256(1.2)(c) as the Kruger bloc had more that 50% of the fair market value of all the shares. The 49% bloc might have had a greater value to SGF than that of the 51% bloc to Kruger because of a contingent put right accorded to SGF under the USA. However, since this put could not be assigned to any third-party purchaser, it did not affect the shares' FMV.

This decision has now been affirmed in the Federal Court of Appeal, but with the Court only dealing with the valuation issue, and finding that there were no noteworthy errors.

Neal Armstrong. Summaries of Kruger Wayagamack Inc. v. The Queen, 2015 TCC 90, aff’d 2016 FCA 192 under s. 256(1.2)(c) and s. 256(1)(a).