The taxpayer was held 25% by a Canadian individual ("Côté") and three US family members. The four acquired the taxpayer with the understanding that Côté would operate the business. Two of the US shareholders delegated their power of attorney to the third, who then appointed Côté as his proxy. The taxpayer argued that, because Côté had the right to acquire the shares of the other three, he had control of the taxpayer; and therefore the US shareholders could not also have control.
Archambault J dismissed the taxpayer's appeal for a small business deduction. Deemed control under s. 251(5)(b)(i) is a legal fiction that did not have the effect of nullifying the US shareholders' actual control. He stated (at para. 23):
There can in a sense, be two distinct persons or groups of persons that are simultaneously in a position of control with respect to a corporation, namely: the person or group determined on the basis of reality, and the person or group determined on the basis of the legal fiction. ... [P]aragraph 251(5)(b) of the Act does not state that the real owners ... are no longer to control the corporation.