North American et al. v. The Deputy Minister of Finance, 2019 MBQB 29

At issue was whether a corporation (“533”) whose shares were considered by the applicants to be beneficially owned by Mrs. Carson was associated for ITA purposes with corporations that clearly were controlled by Mr. Carson, so that 533 was subject to payroll tax under The Health and Post Secondary Education Tax Levy Act (Manitoba). The two directors of 533 were Mr. and Mrs. Carson and they were its Secretary and President, respectively. 2/3 of the shares of 533 were held by one of the Mr. Carson-controlled corporations (“360”). However, a declaration of trust had been signed by 360 “effective” the date of its acquisition of those shares. Confusing language in the declaration including a clause in which the President of 360 (Mrs. Carson) granted a proxy over the shares to Mrs. Carson, had led the Tax Appeals Commission (“TAC”) to conclude that Mr. Carson controlled 533. However, Dewar J essentially found that the declaration of trust had the usual effect of such a document and reversed such finding.

With the reversal of that finding, there were no other significant findings that would support the TAC’s findings of association. There had been no challenges to the sworn declaration of Mrs. Carson (who had background in the restaurant business of 533) that she was not under any influence, and the “the surrounding evidence [was] not sufficient to conclude that Nancy Carson was simply her husband’s pawn” (para. 44).

Dewar J further stated (at para. 46)

McGillivray made it clear that there needed to be a legally enforceable right and ability to elect the directors or influence the shareholders to elect those directors. In McGillivray, the trial court found an agreement. The record before TAC was insufficient to find an agreement in this case. Of particular importance is the fact that whereas in McGillivray, the wife had “limited” involvement in the restaurant, here the evidence indicates not only that assets in which she had an ownership interest were being used to support a loan needed to purchase the shares, she was making the material decisions in the operation of the restaurant.

Dewar J reversed a finding of the Manitoba Tax Appeals Commission that a corporation (“533”) was subject to de facto control (as described in ITA s. 256(5.1)) by Mr. Carson rather than Mrs. Carson, Accordingly, 533 in fact was not associated within the meaning of ITA s. 256 with Mr. Carson’s companies and, thus, also, for Manitoba payroll tax purposes. This reversal was made on the basis that the TAC had misinterpreted the terms of a declaration of trust respecting 2/3 of the 533 shares held by one of Mr. Carson’s companies. With that reversal, there were no other significant findings that would support the TAC’s findings of association. In contrast to McGillivray, the evidence indicated that “she was making the material decisions in the operation of the restaurant” of 533, and there was no unwritten agreement that she would follow her husband’s direction.

Dewar J also commented obiter on the subsequent enactment of s. 256(5.11), stating (at para. 48):

I make no comment about whether that amendment if applicable in 2007 - 2011 would have changed the result which I have come to on this appeal, except to say that it would have merited further consideration. The amendment permits a court to conclude that a person without a legally enforceable right or ability to control or influence the election of directors has control of a company for the purpose of determining whether that company is associated with another.