Aco holds one share of Cco bearing 1000 votes and Cco holds 100 share of Bco carrying one vote per share. Aco and Cco deal at arm's length. The questioner noted (TaxInterpretations translation) that at the 1997 APFF Roundtable in 2010-0359551I7 "CRA indicated that the test provided in ITA subparagraph 186(4)(b)(i) refers to the number of share carrying a right to vote in all circumstances rather than simply the number of votes independent of the number of shares. The CRA further indicated that the test provided in ITA subsection 186(2) was interpreted in the same manner." Is Bco controlled by Cco under s. 186(2)? CRA responded:
Consistently with the longstanding position of the Directorate, we are of the view that the concept of control referred to in ITA subparagraph 186(4)(a) is as defined in subsection 186(2), which contemplates that a corporation is controlled by another corporation if more than 50% of the issued shares in its capital (having full voting rights under all circumstances) belong to the other corporation, to persons with whom the other corporation does not deal at arm's length or to the other corporation and persons with whom the other corporation does not deal at arm's length.
We also confirm that the position in [the above documents] still represents the position of the Directorate respecting the share ownership test in ITA subparagraph 186(4)(b)(i).
However…if it emerged that the utilization of a capital structure as unusual as that described in your question was part of a series of transactions effected with a view to avoiding the payment of Part IV tax, it would be necessary to consider the application of ITA subsection 245(2).