Please advise on the following: 1. Will a close corporation (CC) that qualifies as a Small business corporation, still qualify if the members of the CC are the directors of a company, but the shares are held by a trust and not by them? They will b
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The definition of SBC in section 12E of the Income Tax Act does not include any references to connected persons in relation to shareholdings. This fact affects your questions as follows:
1. The members of the CC are not shareholders in the company; they are merely directors. The shares are held by a trust of which they are trustees. It follows that their positions as directors of the company and trustees of the shareholding trust will not disqualify the CC from being an SBC. In saying this I assume that the other qualifying requirements are met.
2. If the trustees become discretionary beneficiaries of the trust, the CC will still qualify as an SBC. But in the probably unlikely event that they become vested beneficiaries in respect of the shares, the CC will fail the qualifying requirement.
3. The husband sells (or even donates) his interest in the CC to his wife and holds the shares in the company. The CC will still qualify because the wife is the only member and she holds no other shares