If Son’s Buyco issues a note to his parents for the purchase of all of the shares of Opco, would the parents have de facto control of Buyco and Opco because of the note? The CRA said they would, if the note provided the parents with “some influence” over Buyco. The CRA would look at the proportion the note represented of all of the Buyco’s debt, the note’s repayment terms, the guarantees given by Son or other guarantors and Buyco’s borrowing capacity (its ability to repay the note, if payment were demanded). A non-interest bearing note payable over a reasonable amount of time and Buyco’s capacity to repay the note would suggest no such influence. The CRA, in its analysis, referred to IT-64R4, paragraph 23, and Corpor-Air Inc. v R, 2006 TCC 75.
CRA technical interpretation 2024-1038891E5 (February 18, 2025) summarized in Tax Topics no 2737 (August 12, 2025)
