International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Broadening the de facto control test could impact cross-border transactions


Proposed changes to the Income Tax Act (Canada) included in the 2017 Federal Budget expand the relevant factors to be used in determining when de facto control of a corporation exists.


Nancy Diep

Steve Marshall

De facto control, in contrast to de jure control, which focuses on the legal control of a corporation, is determined by looking at whether a taxpayer has any direct or indirect influence that, if exercised, would result in control in fact of a corporation. De facto control is relevant, for example, in determining whether corporations are associated, and whether a corporation will be considered to be a Canadian-controlled private corporation.

The proposed amendment overrides a recent court decision (McGillivray Restaurant Ltd v R, 2016 FCA 99) that held that only factors that include a legally enforceable right and ability to effect a change to the board of directors or its powers, or to exercise influence over the shareholder or shareholders who have that right and ability, should be relevant in determining de facto control. This effectively dismissed operational control of a corporation as a relevant factor, because operational control does not concern the ability to effect a change to the board of directors or its powers.

Proposed subsection 256(5.11) will require that all factors that are relevant in the circumstances be considered when determining if a taxpayer has any direct or indirect influence that, if exercised, would result in control in fact. The proposal goes as far as to state that the factors to be considered are not limited to, nor do they even need to include, whether the taxpayer has a legally enforceable right or ability to effect a change of the board of directors.

The proposed amendments apparently do not extend control to circumstances where a person or group of persons merely has control over day-to-day operations, but parties should consider reviewing their corporate structures to evaluate what sort of operational control or influence is actually being exerted over corporations, and to ensure that prior conclusions relating to de facto control will not be affected by this proposed change. These amendments are proposed to apply to taxation years beginning on or after March 22 2017.

Nancy Diep ( and Steve Marshall (

Blake, Cassels & Graydon LLP

Tel: +1 403 260 9779 and +1 403 260 9631


more across site & bottom lb ros

More from across our site

The General Court reverses its position taken four years ago, while the UN discusses tax policy in New York.
Discussion on amount B under the first part of the OECD's two-pronged approach to international tax reform is far from over, if the latest consultation is anything go by.
Pillar two might be top of mind for many multinational companies, but the huge variations between countries’ readiness means getting ahead of the game now, argues Russell Gammon, chief solutions officer at Tax Systems.
ITR’s latest quarterly PDF is going live today, leading on the looming battle between the UN and the OECD for dominance in global tax policy.
Company tax changes are central to the German government’s plan to revive the economy, but sources say they miss the mark. Ralph Cunningham reports.
The winners of the ITR Americas Tax Awards have been announced for 2023!
There is a ‘huge demand’ for tax services in the Middle East, says new Clyde & Co partner Rachel Fox in an interview with ITR.
The ECB warns the tax could leave banks with weaker capital levels, while the UAE publishes guidance on its new corporate tax regime.
Caroline Setliffe and Ben Shem-Tov of Eversheds Sutherland give an overview of the US transfer pricing penalty regime and UK diverted profits tax considerations for multinational companies.
The result follows what EY said was one of the most successful years in the firm’s history.