Association – Control in Fact

Volume No. 05-30

“Control in fact must be determined by considering all relevant factors.”

In the case of Timco Holdings Limited vs. The Queen (2003-1710(IT) G), the Court had to decide whether WCD Developments Limited (“Developments”) was associated with Timco Holdings Limited (“Holdings”). Developments was controlled by Mr. Duntz. Holdings was owned 50% by Developments and 50% by a non-resident not related to Mr. Duntz. Developments and Holdings carried on most of their businesses through a joint venture. Developments owned 38% of the joint venture and Holdings 30%. The non-resident had arranged for Mr. Duntz to act as a director and to serve as the president of Holdings in order to expedite the signing of documents.

The CRA assessed the corporations as associated on the basis that Mr. Duntz had “de facto control” of both corporations.

The Court reviewed a number of cases and determined that, in order for there to be de facto control, a person must have a clear right and ability to effect a significant change in the Board of Directors or the powers of the Board of Directors or to influence directly the shareholders who would otherwise have the ability to elect the Board. After considering all the facts, the Court held that Mr. Duntz could not control the election of the directors of Holdings because:

  1. Developments owned only 50% of the voting shares of Holdings.
  2. There were no agreements that gave Mr. Duntz the power to determine the directors of Holdings.
  3. Mr. Duntz had no direct influence over the non-resident.

It was clear in the joint venture agreement that nothing could be done without unanimous agreement, so Mr. Duntz did not control Holdings.

When an individual is involved with two corporations, a careful review is required to ensure that the individual does not have de facto control of both, if it is important that the corporations not be associated.


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