Section 251.2

Subsection 251.2(2)

Paragraph 251.2(2)(a)

See Also

Birchcliff Energy Ltd. v. The Queen, 2017 TCC 234

proxy which accorded no discretion to a class of shareholders did not render them a group
replaces the judgement in 2015 TCC 232 which was nullified by 2017 FCA 89

A newly-launched public corporation ("Birchcliff") sought to access the losses and credits of a lossco ("Veracel"). A substantial subscription receipt offering by Veracel closed about one month before the implementation of a Plan of Arrangement under which the subscription receipts were converted into Class B common shares and then immediately converted on the amalgamation of Vercel with Birchcliff into common shares of the amalgamated corporation. As these investors received a majority voting equity interest in Amalco, the loss streaming rules otherwise engaged by ss. 256(7)(b)(iii)(B) and 111(5)(a) were avoided.

In rejecting a Crown submission that the Class B shareholders, by subscribing to buy those shares and by giving a proxy to a promoter of the transaction, formed a group of persons having acquired control of Veracel immediately prior to the amalgamation, Jorré J stated (at paras 100 and 101):

…[T]he entire structure of the transaction makes it impossible to exercise the proxy for Class B shares since those shares are replaced at the same time as they are created. …

At the most, the proxy links them as Class B shareholders to assist in implementing the plan of arrangement; it does not give them the ability to change the direction of Veracel and it does not give them control of Veracel.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham ephemeral transactions under a Plan of Arrangement were not a sham 205
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) series of transactions found to be an avoidance transaction 288
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) raising share equity through a lossco immediately before its amalgamation was abusive 268

Administrative Policy

15 October 2014 External T.I. 2014-0547551E5 F - Acquisition of Control

shrinking of CCPC control group likely was AOC if sufficiently material

The common shares of Opco are held as follows: A-20%; B-9%; C-10%; D-25%; E-10%; F-13%; G-13%. A, B and C are a related group as are E, F and G. D is unrelated to the others. All the shareholders act in concert to control Opco.

Will there be an acquisition of control of Opco if: (i) A acquires the shares of E, F and G; (ii) such shares instead are acquired by a Holdco wholly-owned by A; or (iii) A, B, C and D acquire the shares of E, F and G in proportion to their respective existing percentage ownership? CRA responded (TaxInterpretations translation):

[B]y acquiring the common shares…held by E, F and G, A would hold 56% of the common shares of Opco. Consequently, A would control Opco. In these circumstances, the jurisprudence recognizes that control by one person excludes simultaneous control by a group [citing Southside and Emory]… .

Respecting your second question…the control of Opco also would have been acquired by A. With his direct and indirect (through Holdco) interest in Opco, A would control Opco after the share transfer. …

Respecting your last question, the described acquisition of the shares…of Opco by A, B and C and would establish respective interests of 31%, 14%, 16% and 39%. …[T]he related group comprising A, B and C would have an interest of 61%... .That could ["pourrait"] represent a sufficient common link to indicate that a new group controlled Opco. In such determination, it also is necessary to take into account that a significant number of the shareholders of Opco (three out of seven) would cease to be such and the total interest of the departing shareholders would represent a significant percentage (36%) of the totality of the shares of Opco. This situation differs significantly from the case of a departing shareholder with little or no common link or common interest with the other shareholders with which it did not act in concert, and thus did not form part of the control group. …[I]t is quite likely ["fort probable"] that there would be a resulting acquisition of control of Opco… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249 - Subsection 249(4) reduction in CCPC shareholders from 7 to 4 likely would result in AOC 279

Subsection 251.2(3)

Paragraph 251.2(3)(b)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Application where trustees vest all interests of a beneficiary (pp. 154-155)

Paragraph 251.2(3)(b) provides that variations or amendments to a trust and the exercise or failure to exercise a power do not give rise to a loss restriction event for the trust, provided that each majority-interest beneficiary or member of a majority-interest group of beneficiaries is affiliated with the trust immediately before the variation, amendment, or failure to exercise a power. This exception should apply when the trustees of a discretionary trust vest all of the income or capital interests in a beneficiary, because the trust is affiliated with the discretionary beneficiary immediately before the exercise of discretion pursuant to paragraph 251.1(4)(d).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Articles of Treaties - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(35) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379