The CRA and the courts will need to adopt a narrower definition of de facto control for the purposes of subsection 84.1(2.31), if its policies objectives are to be met. The subsection, among other things, requires parents to give up de facto control within three years of a sale to ensure that paragraph 84.1(2)(e) applies to the sale. Subsection 256(5.11), however, which was enacted in 2017 to overrrule McGillivray Restaurant Ltd. v R, 2016 FCA 99, reinstates factors in the de facto control test that will make it difficult for families to meet the requirements of subsection 84.1(2.31). These factors include day-to-day management (Mimetix Pharmaceuticals Inc. v R, 2001 CanLII 787 (TCC) and Societe Fonciere d’Investissement Inc. v R, [1996] 3 CTC 2537, but see Plomberie J.C. Langlois Inc. c R, 2004 TCC 734), the ownership of retractable preferred shares (permitted by 84.1(2.31) but a factor in favour of de facto control, per IT-64R4) and the “influence of family members” (IT-64R4 and Transport M.L. Couture, 2004 FCA 23).
M Halil, D Carolin and M Kakkar “Are Section 84.1 Intergenerational Transfers (Mission) Impossible? The Meaning of “De Facto Control” in the Context of Subsection 84.1(2.31)” Tax For the Owner-Manager 25:1 (January 2025)
