The Crown appealed a decision regarding the applicable tax rate for the respondent corporation, which depended on whether it was controlled by another company, Validor Limited, under s. 39(4) of the Income Tax Act.
Following a corporate reorganization, voting rights were split equally between Validor and a minority shareholder group, but Validor retained the right to wind up the company and receive the majority of the assets.
The Supreme Court of Canada allowed the appeal, holding that control in the real sense was not surrendered by Validor, as it retained the critical right to terminate the corporate existence and distribute the assets in its favour.
