In the two taxation years in question, non-residents held 60%, then 70%, of the voting (Class A) shares of the taxpayer. However, provisions of the unanimous shareholder agreement (USA) divided the holders of the Class A shares into three groups (A, B and C), with each group only entitled to vote for a specified number of directors. Accordingly, the non-residents had the right to appoint only three of the seven directors, then subsequently four of the eight directors.
The Tax Court found that, as the Canada Business Corporations Act deemed any share transferee to be bound by a USA, it followed that, if all the non-resident shareholders had sold their shares to the notional particular person referred to in para. (b), that particular person would be subject to the same voting restrictions under the USA. The Crown did not challenge this point in the Federal Court of Appeal decision summarized above.