Principal Issues: Whether there is an acquisition of control of a corporation for income tax purposes in the event of the homologation of the mandate given in anticipation of the mandator's incapacity where the mandator is the sole shareholder of the corporation.
Position: No.
Reasons: The ownership of the shares with the right to a majority of the votes in the election of the board of directors remains with the mandator. Moreover, the mandate given in anticipation of the mandator's incapacity should not be considered as an "external document" (i.e. agreements that are not constating documents of a corporation) that should be examined to determine de jure control of a corporation.
FEDERAL TAX ROUNDTABLE 5 OCTOBER 2012
2012 APFF CONFERENCE
Question 17
Acquisition of control-mandate in case of incapacity
Mr. X controls and is the sole shareholder of XYZ Inc. A few years ago, Mr. X signed a power of attorney (“mandat”) for the event of incapacity. Mr. X became unfit and his power of attorney was homologated.
Questions to the CRA
In the situation described above,
a) Is there an acquisition of control of XYZ Inc. where the agent named in the power of attorney in the event of the incapacity of Mr. X is his spouse, i.e., a person related to Mr. X under subsection 251(2)?
b) Is there an acquisition of control of XYZ Inc. where the agent named in the power of attorney in the event of the incapacity of Mr. X is Mr. A, his accountant (a person not related to Mr. X)?
CRA Response
In light of Duha Printers (Western) Ltd. v. Canada, [1998] 1 S.C.R. 795, we are of the view that there will be no acquisition of control of XYZ Inc. when the power of attorney given in anticipation of the incapacity of Mr. X is homologated. In particular, notwithstanding the homologation of this power of attorney governed by the Quebec Civil Code, the ownership of that number of shares conferring a majority of the votes for the election of the board of directors is part of the patrimony of Mr. X. Furthermore, we are of the view that a power of attorney granted with a view to incapacity should be considered to be an "external document" (in relation to the constating documents of the corporation) in the determination of the de jure control of a corporation.
It is emphasized however that the rights of an attorney (“mandataire”) pursuant to a power of attorney in contemplation of incapacity could, in certain circumstances, engage paragraph 251(5)(b) and subsection 256(1). In this regard, we refer to inter alia the following documents: 2000-0008257, 9814370, 9726535, 9623675, 9106955.
Response prepared by: Urszula Chalupa
(613) 957-2124
2012-045411