On January 1 of Year 1, Mr. A (the sole shareholder of Holdco) and Holdco subscribed, respectively, $100 and $900 for 100 Class A voting discretionary-dividend common shares and 900 Class B non-voting non-participating discretionary Preferred Shares on the incorporation of Opco. Opco annually paid dividends to Holdco. In finding that the annual dividends were not subject to Part IV tax because Opco was connected to Holdco under s. 186(4)(a), CRA stated:
… Opco is controlled (otherwise than by means of a right described in paragraph 251(5)(b)) by Holdco at that time, by virtue of 186(2). That would be so since more than 50% of the issued shares of the capital stock (with full voting rights in all circumstances) of Opco would belong to Mr. A with whom Holdco “does not deal at arm's length" by virtue of paragraph 251(1)(a).