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: 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. In this regard, the ruling letter indicates that:
- Parent will control DC and each TC in order to retain control over the property currently owned by DC and the investment decisions related thereto in the same manner as before and to protect his economic interest in the Parent Note and Parent Note 2.
- Parent has no intention of ceasing to control the TCs, is in good health and expects to continue to be fully involved in the day-to-day management of DC.
[N]one of the purposes of Parent acquiring and maintaining voting control of the [TCs] is to cause his children to be related to the [TCs] so that subsection 55(2) would not apply to any of the deemed dividends resulting from the Proposed Transactions since Parent intends to exercise the same degree of control over each of the [TCs] that he currently exercises over DC.