A family company (DC) controlled by father and that engaged in leveraged investing will spin off a portion of its share portfolio to respective transferee corporations (TCs) largely owned by the respective three adult children of father but with father retaining voting control. Largely because all the corporations will be related through the continuing control of father, CRA ruled that the s. 55(3)(a) exception applied, so that there was no need to strictly comply with the butterfly rules. CRA also ruled that s. 55(4) would not apply (which would have applied if it could reasonably be considered that one of the main purposes for father subscribing for special shares of the TCs was to cause them to continue to be related to DC so as to engage the s. 55(3)(a) exception), in light of a representation that father would continue to have high-level involvement in the TCs’ investing activities.
The trustees of a family discretionary trust shareholders of DC had the authority to appoint beneficiaries out of a wide range of persons including persons dealing at arms’ length with father. A representation is given that no such authority had been exercised - and that the trust has not acquired property from any such potential beneficiary or a person with whom such person does not deal at arm’s length.