Section 251.1

A corporation ("Lossco") that was controlled by an individual ("X") was accepted as being affiliated with a corporation ("Opco") that was held by a partnership of which the general partner was a corporation controlled by X (and one of whose limited partners was a corporation controlled by X).

Where an estate has de facto control of a corporation (Holdco) by virtue of control of a corporate trustee which holds all the voting shares of Holdco, s. 40(3.6) will apply to deny a loss on a redemption by Holdco of preferred shares held by the estate.

A trust of which Mr. A is the sole trustee is affiliated with a corporation controlled by Mr. A in his individual capacity.

The taxpayer described a structure in which the individual wholly-owning shareholder ("X") of "Xco" held 65% of a corporation ("Zco") which held all the GP units of two limited partnerships which, in turn, held two corporations ("Aco" and "Bco"). The limited partners (including Xco) had no voting rights in their capacities of limited partners of the partnerships. The taxpayer asked whether Xco, Aco and Bco were affiliated. The Directorate declined to address this question directly because it "was too specific" but stated:

"The principle enunciated in Vineland Quarries applies where the intermediate shareholder is either a corporation or a partnership. In other words, where a partnership owns more than 50% of the issued voting shares of a corporation and where a particular partner is entitled, without restriction, to exercise more than 50% of the votes that may be cast at a meeting of the partnership, it is our view, that the particular partner controls the corporation."

A corporation is controlled by one person who is a partner holding a majority interest in a partnership.

The corporation and partnership would not be affiliated under s. 252.1(1)(d), in light of the Southside principle that there is not control by a group when the corporation is controlled by one person. However, the corporation and partnership would be affiliated under s. 252.1(1)(e) in light of the definition of majority interest partner. Furthermore, if the partnership had de facto control of the corporation, they would also be affiliated with each other under s. 251.1(1)(b)(i).

Mr. X was the settlor and is sole beneficiary of Trust A and is its trustee along with his brother. The trustees of Trust B, which was a discretionary trust settled by "Sister X" of Mr. X (apparently out of her estate, as she also is stated to have died before the formation of Trust B), are Mr. X and his brother, and its beneficiaries are Mr. X and his spouse and children. Trust A and B are the respective sole shareholders of Corporations A and B. Are Corporations A and B affiliated for purposes of s. 69(11)?

After noting that, under ss. 251.1(1)(c)(i) and 251.1(4)(c), the two corporations would be affiliated if they were controlled de jure by affiliated trusts, and whether the two trusts were affiliated under s. 251.1(1)(h)(i) turned, in part, on whether Sister X, who had been related to Mr. X, could be considered to still be aa affiliated "contributor" to Trust B, as defined in s. 251.1(3), CRA stated (TaxInterpretations translation):

[B]ased on…2014-0534851C6, …when it is necessary to determine if a contributor to a trust is affiliated to the contributor to another trust for purposes of paragraph 251.1(1)(h), a deceased person should be assimilated to the "persons" referred to in subparagraph 251.1(4)(d)(iv).

…Mr. X and Sister X would be persons related by blood by virtue of paragraph s. 251.1(6)(a) and they would be deemed to be affiliated to each other by virtue of subparagraph 251.1(4)(d)(iv). Furthermore, Mr. X, as sole beneficiary of Trust A, would be a majority interest beneficiary of Trust A. Mr. X would also, by virtue of subparagraph 251.1(4)(d)(i), be a majority interest beneficiary of Trust B…

… Trust A and Trust B would thus be affiliated…by virtue of subparagraph 251.1(1)(h)(i)… .

Consequently, Corporation A and Corporation B also would be affiliated… .

Unlike the s. 94(1) definition, the s. 251.1(3) definition does not specify that a contributor includes a decedent. Is one included? CRA responded (TaxInterpretations translation):

[D]epending on the context, a deceased person could be considered as having at any time made, a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of a trust. This position applies to transfers of property made as a result of the death of a taxpayer and to inter vivos loans or transfers of property made by a taxpayer prior to his or her death.

Where a person is not a beneficiary, but it affiliated with a beneficiary with a majority interest in a trust, is that person also included in the definition of "majority-interest beneficiary"? CRA stated (TaxInterpretations translation):

A person (other than a trust [later referencing s. 251.1(4)(d)(iii)]) which does not have an interest qua beneficiary in the income nor an interest qua beneficiary in the capital of a trust could be a majority interest beneficiary in certain cases. This is the case if such person is affiliated with a person or persons who have interests qua beneficiary in the income of the trust having a fair market value exceeding 50% of the fair market value of all the interests qua beneficiary in the income of the trust or who have interests qua beneficiary in the capital of the trust having a fair market value exceeding 50% of the fair market value of all the interests qua beneficiary in the capital.

The Explanatory Notes example (re Philip and Muriel) on s. 251.1(3) confirms this interpretation.