Share transfer and acquisition of control

A corporation client has a share transfer between two shareholders. I am not sure if acquisition of control occurs in this situation.

before transfer: husband 40%; wife 40%; third party(arm’s length) 20%
after transfer: husband 60%; wife 40%

The arm’s length third party sold the shares to husband, so husband now has 60% of the total shares(change in control of the company). But should husband and wife been seen as one group? Then the control does not change since the company is always controlled by husband and wife.


Any entity or person owning 50% +1 share has control. Husband and wife are 2 people. Therefore the husband has gained control.

You also need to do the disposition so that capital gains are recorded to the seller and the PUC is correct in your file.

Thanks! So it does trigger change in control and taxation year end immediately before the acquisition of control. I don’t think PUC will change as no new shares are issued. ACB of shares to husband is the purchase price.

The rules are different when related parties (spouses) are involved. A related group (husband & wife) controlled the corp before the change, and the same group controlled it after the change. A change in control does not automatically mean an acquisition of control. Be very careful that you don’t trigger a deemed year end by mistake. Do some research, or ask a tax accountant/lawyer.

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In Southside Car Market Ltd. v. R., 82 DTC 6179, [1982] CTC 214 (FCTD), the court held that where a single person controlled a corporation, that corporation could not also be controlled by a group of which that person was a member. On that basis, control by a group is only relevant where no single person has outright control.

Because the husband has outright control after and they were equal before the transaction, I would be inclined to state that there was an AOC here. I don’t believe the 40% owned by the wife has anything to do with it. Control by a group is only considered when there is no outright >50% owner.

Had the third party sold 10% to husband and 10% to wife, then for sure no AOC.

[EDIT: The following is totally incorrect as discussed in later posts and highlighted by @kevin. Not sure what I was thinking when I typed the following out. Leaving it in for posterity but disregard as technical info.]
I’m curious about @gmao’s comment about the PUC not changing. The only way PUC wouldn’t change is if the husband paid the third party’s ACB for the shares, not the husband’s. But even then, what kind of sale was this? Did the business really not grow in value since the third party bought their shares? If shares were sold for less than FMV then there may be some deeming provisions involved here.

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I wouldn’t think the PUC would change on a simple purchase/sale of shares between two individuals. The purchaser’s ACB will change but the PUC is a reflection of the funds paid to the company for the initial issue of the shares (plus or minus any adjustment for the issuance, from treasury, of any other shares of the same class).


Kevin, you are absolutely correct. Total brain fart on my end. No PUC change in this case at all as no new shares were issued by the company. I was too involved with the AOC debate it seems. Thanks for the correction.


Thanks for bringing out the court case!

Thanks Kevin. I just feel this is outside (outside company) transaction so has nothing to do with PUC. Your explanation is very clear!

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