Two spouses were the equal shareholders of Opco, which was a small business corporation selling telecommunications services. One of the spouses (Mr. A) wholly owned Realtyco, whose only asset of consequence was an immovable that it leased to Opco for use in Opco’s Canadian active business operations. There were no intercompany debts or shareholdings between Realtyco and Opco.
1. In relation to a sale of the shares of Opco by the two spouses to the Holdco of their adult child for non-share consideration, would Realtyco be considered a relevant group entity for purposes of s. 84.1(2.31)(c)(iii) and s. 84.1(2.32)(c)(iii), so that continued control of Realtyco by Mr. A would oust the exception from the application of s. 84.1 for intergenerational transfers of qualified small business corporation shares (QSBCS)?
2. Similarly, on a sale of Realtyco by Mr. A to Holdco, would Opco be considered a relevant group entity?
Re Q.1, CRA confirmed that Realtyco would not be considered a relevant group entity in relation to the sale of the shares of Opco to Holdco.
Re Q. 2, CRA indicated that, since Opco carried on an active business and such business of a related corporation was relevant to the qualification of the shares of Realtyco as qualified small business corporation shares (QSBCS), Opco would be a relevant group entity within the meaning of the above provisions in connection with such disposition of the shares of Realtyco.