The sole shareholder (Mr. X) of Opco engages in a freeze transaction as a result of which he holds all the preferred shares and 95% of the common shares of Opco and 5% of the common shares (assumed to be qualified investments and not prohibited investments) are issued to the TFSA of an unrelated key employee of Opco. CRA stated:
[I]t appears that the shares of Opco subscribed for by the TFSA of the Key Employee were issued by Opco because of the employment relationship between Opco and the Key Employee. Thus, it appears to us that the issuance of those shares would not have occurred in an open market where parties deal with each other at arm's length, and that the main purpose of the issuance was to allow the Key Employee, the holder of the TFSA, to benefit from the exemption from tax under Part I with respect to an amount relating to the TFSA. In such a case, we believe that it would be reasonable to consider as a benefit any increase in the total FMV of the TFSA's property that could be attributable, directly or indirectly, to the issuance of shares of Opco to the Key Employee's TFSA.
Consequently, we are of the view that the situation described above could give rise to an advantage within the meaning of subsection 207.01(1).