CRA rules on the use of special voting shares which keep corporations related for s. 55(3)(a) purposes

A DC which holds a rental property and an investment portfolio and is owned by Parent and his four children will spin off its investment portfolio in reliance on the s. 55(3)(a) exception to four TCs mostly owned by each of the four children. However, parent will have control of each TC by being issued special voting shares on their incorporation.

The CRA tags mention s. 55(4) as a provision that it considered relevant. In this regard:

• access to the s. 55(3)(a) exception was assisted by or depended on Parent controlling all the corporations involved in the transactions;
• the special voting shares of Parent likely had minimal economic attributes; and
• Parent’s will bequeathed them to the respective children.

To help address this, the ruling letter represents that Parent is in good health and will control the TCs in order to protect his economic interest in notes that will be owing to him by the TCs.

Neal Armstrong. Summaries of 2018 Ruling 2018-0749491R3 under s. 55(3)(a)(ii), s. 55(4) and s. 186(1)(b).