David Louis at Minden Gross has an interesting article in the October 16 issue of Tax Topics on control premiums for “thin voting shares” (shares that do not participate significantly in the earnings or assets of a corporation but that confer voting rights on the holder). The CRA, at the 2007 CTF Tax Conference, when asked about such shares responded that “It is the opinion of the CRA that a hypothetical purchaser would be willing to pay some amount for the voting control of a company.”
What is the CRA up to? The estate freeze is a staple of tax planning for the owner-managed business. Why make the matter more complicated and fraught than it already is, especially given that the entire concept, quite frankly, is a bit dodgy from a valuation perspective? After all, it seems likely that a hypothetical purchaser would be willing to pay some amount—more than a nominal amount—for Common Shares issued just after effecting a freeze. Why ignore that fact and then pick on thin voting shares?
Louis also notes that at least one CRA valuator takes the position that non-voting Common Shares should be considered to have nominal value when unlimited dividends can be paid on another class of shares that has voting control. In this context, Louis refers to Winram v. M.N.R., [1972] D.T.C. 6187 (F.C.T.D.).
