390 I R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [ 19671 Toronto 1966 BETWEEN : Sept. 7 & 8 FLOOR & WALL COVERING DIS- Ottawa TRIBUTORS LIMITED and Sept. 22 APPELLANTS VINA -RUG (CANADA) LIMITED AND THE MINISTER OF NATIONAL RESPONDENT. REVENUE Income tax—Income Tax Act, R.S.C. 1952, c. 148, ss. 39(2), 4(b)—"Associated corporations"—More than one group in position to control corporation—Determination of group in control. The matter for decision in each of these appeals was whether each of the appellants was associated with a company known as Stradwick's Limited within the meaning of section 39 of the Act. The shareholdings of relevant corporations were as summarized below: Stradwick Floor Stradwick Industries Voting Shares & Wall Vina-Rug Ltd. Ltd. Father nil nil 12 25,500 Two sons 4,478 12,266 20 nil Associate 1,121 6,133 8 9,500 Stradwick Ltd. 5,250 Others ..... 4,401 16,351 15,000 10,000 40,000 40 50,000 The respondent submitted that Stradwick's Ltd. was controlled by "the group" composed of the two sons and an associate which group similarly controlled the two appellants, whereas the appellants submitted that Stradwick's Ltd. was controlled by the "related group" comprising father and sons which group, alone, was not in a position to control either of the appellants. Held, That the determination of what persons constitute a "group" within the meaning of the section is a question of fact; and that each of the two named groups was a "group" that could control Stradwick's Ltd.; and that while it was open to the appellants to seek to establish that the "group" claimed by the respondent was in fact the "group" that controlled the corporation, the appellants did not succeed in doing so. 2. That the Minister's assumption not having been proven wrong, the appeals were dismissed. APPEALS under the Income Tax Act. P. N. Thorsteinsson for appellants. L. R. Olsson and G. V. Anderson for respondent.
I Ex. C.R. EXCHEQUER COURT GIBSON J.:—These appeals were tried together because the same evidence and argument was applicable to each. The matter for decision in each appeal is whether each of CO the appellants was associated with a company known as Stradwick's Limited within the meaning of s. 39(2) of the (C Income Tax Act. Specifically, the determination of which "group of per- sons" of two possible groups controlled this company with- REVENUE in the meaning of s. 39, s-s. 4, para. (b) the taxation years 1961 and 1962 is the issue in each ap- peal. In each case the assessments appealed from were made on the assumption that each of the appellant companies was associated with each other and each was also associated with Stradwick's Limited and Stradwick Industries Limited. The owners and the number of shares of all the outstanding common shares (and there were no other voting shares issued in any of these companies) at all material times of each appellant company and of these two other companies were as follows: Floor & Wall Covering Distributors Limited J. C. Stradwick, Sr. J. C. Stradwick, Jr. W. L. Stradwick H. D. McGilvery Others Total issued shares 10,000 Vina-Rug (Canada) Limited J. C. Stradwick, Sr. J. C. Stradwick, Jr. - W. L. Stradwick H. D. McGilvery - 6,133 Stradwick's Limited Others Total issued shares 40,000 OF CANADA [1967] 391 1966 FLOOR & WALL D V IS E T R RIB IN UT G OR S Ni AD-. A R N D ANADA) LTD. v. M NNT oxo F of the Act during nil 2,239 2,239 1,121 4,401 nil 6,133 6,133 5,250 16,351
392 1 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1967] 1966 Stradwick's Limited V FLOOR & J. C. Stradwick, Sr. 12 WALL COVERING J. C. Stradwick, Jr. 10 DIBTDIBUTO RS LTD. AND W. L. Stradwick 10 VINA -RUG (CANADA) H. D. McGilvery 8 LTD. U. MINISTER OF Total issued shares 40 NATIONAL REVENUE Gib — son J. Stradwick Industries Limited J. C. Stradwick, Sr. 25,500 J. C. Stradwick, Jr. nil W. L. Stradwick nil H. D. McGilvery 9,500 Others 15,000 Total issued shares 50,000 The J. C. Stradwick, Sr. referred to is the father of J. C. Stradwick, Jr. and W. L. Stradwick. H. D. McGilvery is a stranger in the tax sense, and is and has been for many years a business associate of Stradwick Sr. and the sons. The others referred to are strangers in the tax sense. Considering the business activities of all of these companies together during the relevant period such could be described as the manufacture and sale at both the wholesale and retail levels of floor and wall tile and many allied products used as building materials. The factual questions to be decided are two, namely: (1) was Stradwick's Limited at the material times controlled by (a) the two Stradwick sons and McGilvery, as submitted by the respondent, or (b) by Stradwick Sr. and his two sons, as submitted by the appellants; and (2) depending on which group referred to in (1) above is chosen, whether such group is a "group of persons" within the meaning of s. 39(4)(b) of the Income Tax Act. As judicially decided in this court in such cases as Buckerfield's Limited et al. v. The Minister of National Revenue 1 ; Yardley Plastics of Canada Limited v. The Minister of National Revenue2; and Aaron's (Prince Albert) Limited et al. v. The Minister of National Revenue 3 1 [1965] 1 Ex. C.R. 299. 2 [1966] C.T.C. 215. 3 [1966] C T.C. 330.
1 Ex. C.R. EXCHEQUER COURT OF CANADA "control" in this subsection means the right to control by ownership of voting shares, not done at any time with such right to control is therefore not Cô necessarily material. In this connection the appellants, as they were entitled to do, following the dictum of Noël J. in Yardley Plastics of Canada Limited v. The Minister of National Revenue above cited, sought to establish in evidence that the "group of persons" consisting of Stradwick Sr. and the two sons, as opposed to the group consisting of the Stradwick sons and McGilvery, did in fact control Stradwick's Limited. In my opinion the appellants failed to do so. In my opinion also, without detailing the indicia which is clear from the evidence, each of these groups of persons are a "group of persons" within the meaning of s. 39(4) para. (d) of the Act, in that they had at all material times a sufficient common connection as to be in a position to exercise control of Stradwick's Limited. In the result therefore, the appellant has not established that the assumption of the respondent is wrong, namely that the "group of persons" consisting of the Stradwick sons and McGilvery at material times controlled Strad-wick's Limited within the meaning of s. 39(4) (b) of the Act; or that because of this, that this group of persons by this indirect method also controlled Vina Limited. Whether or not within the meaning of s. 39(4) of the Act Stradwick Sr. and the Stradwick sons, also during the same material times, controlled Stradwick's Limited, I do not have to decide, but it is clear from the circumstances of this matter that such is the case. In the result therefore each appellant falls within the provisions of s. 39, s-s. 2 of the Act and is not entitled to get the greater advantage from the lower tax rate provided s. 39(1) (a) of the Act. The appeals are dismissed with costs. [1967] 393 1966 de facto control. What is FrooR & A . NG DISTRIBUTORS LTD. AND vINA -Rua A) (C Lm. M INIT SB of REVIE7N U E Gibson J. -Rug (Canada) para. (d) in
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