Whether control of a corporation was acquired is decided by Income Tax Act subsection 256(7), not by whether ownership feels different afterwards. It deems obvious transfers not to be acquisitions of control — between related persons, on a redemption, through an estate — and deems non-obvious ones, including some amalgamations and trust changes, to be.
Key takeaways
SECTION 01 OF 09
The trigger is not the sale. Subsection 251.2(2), marginal note Loss restriction event, says “a taxpayer is at any time subject to a loss restriction event if (a) the taxpayer is a corporation and at that time control of the corporation is acquired by a person or group of persons”. Subsection 249(4) ends the taxation year on that event; subsection 111(5) restricts the losses carried past it.
Those consequences are covered in losing the losses, the deemed year end, the small business deduction and amalgamation as an alternative. This page asks the prior question: was control acquired at all?
SECTION 02 OF 09
Subsection 256(7) opens by naming where it applies: “For the purposes of this subsection, of section 55… and paragraph 251.2(2)(a) and of subsection 5905(5.2) of the Income Tax Regulations”. That paragraph is the limb quoted above, and it is how these rules reach the year end and the loss restriction. Outside the list, the subsection decides nothing.
The Act does not define control for these purposes; it assumes it and adjusts. Subsection 256(5.1) extends the wider statutory phrase to a controller with “any direct or indirect influence that, if exercised, would result in control in fact of the corporation”. No judgment is cited here: CanLII returned 403 and the Supreme Court’s decision site returned a JavaScript shell.
SECTION 03 OF 09
Paragraph 256(7)(a) is the exculpatory limb: “control of a particular corporation shall be deemed not to have been acquired solely because of” the events it lists. First, an acquisition of shares by “a particular person who acquired the shares from a person to whom the particular person was related… immediately before that time”; second, by a person who “was related to the particular corporation” beforehand. Subsection 251(2) supplies what related means.
Death is covered twice: by “an estate that acquired the shares because of the death of a person”, and by the later step out of the estate to someone the deceased was related to. The load-bearing word is solely: it removes a listed event as a cause, and says nothing about a wider series that puts a new person in control.
A neighbouring rule works on control itself, not its acquisition. Subsection 256(6) deems a person holding control only as security, under an enforceable agreement passing it to an arm’s-length party, not to have controlled the corporation at all — the purpose being “the safeguarding of rights or interests of the controller”.
SECTION 04 OF 09
The second limb catches internal reorganisations, and turns on a condition, not a form. Control is deemed not acquired solely because of “the redemption or cancellation… of, or a change… in the rights, privileges, restrictions or conditions attaching to, shares of the particular corporation” — but only “where each person and each member of each group of persons that controls the particular corporation immediately after the particular time was related” to the corporation immediately before it.
That is what lets an estate freeze survive: the owner exchanges commons for fixed-value redeemable preferreds while new commons go to the next generation or a family trust (Treadstone Law, how a freeze changes the share structure). A third limb covers an acquisition that would otherwise hand control to a related group.
SECTION 05 OF 09
An amalgamation transfers no shares. Under subsection 87(1) the predecessors’ property and liabilities become the new corporation’s and their shareholders receive its shares: nobody buys anything, yet every shareholding changes. Paragraph 256(7)(b) supplies the answer: “control of a corporation is deemed not to have been acquired by any person or group of persons solely because of the amalgamation unless it is deemed by subparagraph 256(7)(b)(ii) or 256(7)(b)(iii) to have been so acquired”.
The first exception is the new controller: subparagraph (b)(ii) deems “a person or group of persons that controls the new corporation immediately after the amalgamation and did not control a predecessor corporation immediately before the amalgamation” to have acquired control of that predecessor immediately before the merger — on top of the year end paragraph 87(2)(a) imposes.
SECTION 06 OF 09
Subparagraph (b)(iii) is drafted the other way round: control of each predecessor and everything it controlled is deemed acquired immediately before the amalgamation unless one of three conditions is met. First, relatedness: it does not apply “unless the predecessor corporation was related… immediately before the amalgamation to each other predecessor corporation”.
The second is hypothetical: whether one notional person holding all the new-corporation shares this predecessor’s shareholders received “would have acquired control of the new corporation as a result of the acquisition of those shares”. The third disapplies it on a merger of two corporations, or of two parents with subsidiaries they jointly controlled. The CRA reads the second as met where a predecessor’s shareholders “collectively received more than 50% of the voting shares of the new corporation” — an illustration in Folio S4-F7-C1, not the provision.
Two CRA positions cost money. Where (b)(ii) bites on a horizontal amalgamation the target gets year ends under both paragraph 87(2)(a) and subsection 249(4), so “the horizontal amalgamation will result in two deemed year-ends for the target corporation” and “the CRA will not accept that the target corporation has only one deemed year-end”. On a triangular amalgamation the CRA’s position is that “subparagraph 256(7)(b)(i) does not override the acquisition of control under paragraph 256(7)(c)” — see Treadstone Law on amalgamating two Ontario corporations.
SECTION 07 OF 09
Paragraph 256(7)(c) catches the reorganisation that looks internal. Where two or more persons exchange shares of one corporation for shares of another, “control of the acquiring corporation… is deemed to have been acquired at the time of the exchange by a person or group of persons” unless the two were already related, or unless a single notional holder of all the newly issued shares “would not control the acquiring corporation”.
That escape is where an ordinary step fails: two vendors rolling their shares into a jointly owned holdco can trigger a deemed acquisition of control of that holdco and its subsidiaries, though the same two people own everything before and after — see Treadstone Law on rolling shares into a holdco. Paragraphs (c.1) and (c.2) extend this to shares taken on a distribution from a partnership or trust, while (d) and (e) run the other way — protecting an ordinary holdco insertion, and a share-for-share takeover in which the acquirer “is not controlled by any person or group of persons”.
SECTION 08 OF 09
Paragraph (h) passes a trust-level event down the chain: where after 12 September 2013 a trust controlling a corporation “is subject to a loss restriction event”, control of that corporation and of each corporation it controlled “is deemed to have been acquired at that time by a person or group of persons”. For a trust that event is someone becoming a majority-interest beneficiary (paragraph 251.2(2)(b)).
Paragraph (i) protects a change of trustee on two conditions: that “the change is not part of a series of transactions or events that includes a change in the beneficial ownership of the trust’s property”, and that no distribution “depends upon the exercise by any person or partnership, or the failure of any person or partnership, to exercise any discretionary power”. The second matters for a discretionary family trust. Paragraph (j) shelters a trustee change where “an employee ownership trust controls a qualifying business”. Where the shares sit in a trust the seller is the trustee — Treadstone Law on a business held in a family trust.
SECTION 09 OF 09
Options sit outside subsection (7). Paragraph 251(5)(b) deems a person holding a right to acquire shares or control their votes to stand in relation to control “as if the person owned the shares at that time”, unless the right is contingent on death, bankruptcy or permanent disability. That is why limbs of paragraph 256(7)(a) exclude relatedness arising “because of a right referred to in paragraph 251(5)(b)”.
Subsection 256(8) adds a purpose test: where such a right is acquired mainly to avoid a listed restriction, the holder is deemed to stand in relation to control “as if the right were immediate and absolute and as if the taxpayer had exercised the right at that time”. A buyer taking 49 per cent plus an option has not necessarily avoided anything (Treadstone Law, loss carryforwards after a share purchase).
The moment is statutory too. Under subsection 256(9) control is acquired “at the beginning of that day and not at the particular time unless the corporation elects… not to have this subsection apply”; the CRA’s T2 guide records that “When control is acquired, subsection 249(4) provides that the tax year of the corporation ends immediately before that control is acquired”. The day rule expressly does not apply “for the purposes of determining if a corporation is, at any time, a small business corporation or a Canadian-controlled private corporation” — both are tested at the actual moment, so both can turn on the order of steps inside one closing (CCPC status).
This is federal tax law read from the Act current to 2026-06-21, not corporate law — a line Treadstone Law draws in amalgamation versus acquisition. Subsection 256(7) works by exception: a reorganisation is safe because it fits a limb, not because it feels internal.
Not automatically. An amalgamation is deemed not to be an acquisition of control unless one of two specific exceptions applies — a new controller emerging who didn’t control a predecessor beforehand, or the predecessors failing the relatedness and notional-shareholder tests set out for amalgamations. Absent those, no acquisition of control is deemed even though every shareholding changes.
No, generally. Control is deemed not acquired solely because of a redemption, cancellation, or change in share rights, provided everyone who controls the corporation immediately afterward was already related to it beforehand — the mechanism that lets an estate freeze exchange common shares for fixed-value preferreds without triggering the rule.
At the beginning of that day, not the actual moment of closing, unless the corporation elects out of that timing rule. The day rule specifically does not apply when testing whether a corporation is a small business corporation or a Canadian-controlled private corporation — those are tested at the actual moment, so they can turn on the order of steps inside one closing.
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