Income Tax Act

Marginal note:Arm’s length

• 251 (1) For the purposes of this Act,

  • (a) related persons shall be deemed not to deal with each other at arm’s length;

  • (b) a taxpayer and a personal trust (other than a trust described in any of paragraphs (a) to (e.1) of the definition trust in subsection 108(1)) are deemed not to deal with each other at arm’s length if the taxpayer, or any person not dealing at arm’s length with the taxpayer, would be beneficially interested in the trust if subsection 248(25) were read without reference to subclauses 248(25)(b)(iii)(A)(II) to (IV); and

  • (c) where paragraph (b) does not apply, it is a question of fact whether persons not related to each other are at a particular time dealing with each other at arm’s length.

• Definition of related persons

  (2) For the purpose of this Act, related persons, or persons related to each other, are

  • (a) individuals connected by blood relationship, marriage or common-law partnership or adoption;

  • (b) a corporation and

    • (i) a person who controls the corporation, if it is controlled by one person,

    • (ii) a person who is a member of a related group that controls the corporation, or

    • (iii) any person related to a person described in subparagraph 251(2)(b)(i) or 251(2)(b)(ii); and

  • (c) any two corporations

    • (i) if they are controlled by the same person or group of persons,

    • (ii) if each of the corporations is controlled by one person and the person who controls one of the corporations is related to the person who controls the other corporation,

    • (iii) if one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation,

    • (iv) if one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation,

    • (v) if any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation, or

    • (vi) if each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation.

• Marginal note:Corporations related through a third corporation

  (3) Where two corporations are related to the same corporation within the meaning of subsection 251(2), they shall, for the purposes of subsections 251(1) and 251(2), be deemed to be related to each other.

• Marginal note:Relation where amalgamation or merger

  (3.1) Where there has been an amalgamation or merger of two or more corporations and the new corporation formed as a result of the amalgamation or merger and any predecessor corporation would have been related immediately before the amalgamation or merger if the new corporation were in existence at that time, and if the persons who were the shareholders of the new corporation immediately after the amalgamation or merger were the shareholders of the new corporation at that time, the new corporation and any such predecessor corporation shall be deemed to have been related persons.

• Marginal note:Amalgamation of related corporations

  (3.2) Where there has been an amalgamation or merger of 2 or more corporations each of which was related (otherwise than because of a right referred to in paragraph 251(5)(b)) to each other immediately before the amalgamation or merger, the new corporation formed as a result of the amalgamation or merger and each of the predecessor corporations is deemed to have been related to each other.

• Marginal note:Definitions concerning groups

  (4) In this Act,

  related group

  groupe lié

  related group means a group of persons each member of which is related to every other member of the group; (groupe lié)

  unrelated group

  groupe non lié

  unrelated group means a group of persons that is not a related group. (groupe non lié)

• Marginal note:Control by related groups, options, etc.

  (5) For the purposes of subsection 251(2) and the definition Canadian-controlled private corporation in subsection 125(7),

  • (a) where a related group is in a position to control a corporation, it shall be deemed to be a related group that controls the corporation whether or not it is part of a larger group by which the corporation is in fact controlled;

  • (b) where at any time a person has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently,

    • (i) to, or to acquire, shares of the capital stock of a corporation or to control the voting rights of such shares, the person shall, except where the right is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual, be deemed to have the same position in relation to the control of the corporation as if the person owned the shares at that time,

    • (ii) to cause a corporation to redeem, acquire or cancel any shares of its capital stock owned by other shareholders of the corporation, the person shall, except where the right is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual, be deemed to have the same position in relation to the control of the corporation as if the shares were so redeemed, acquired or cancelled by the corporation at that time;

    • (iii) to, or to acquire or control, voting rights in respect of shares of the capital stock of a corporation, the person is, except where the right is not exercisable at that time because its exercise is contingent on the death, bankruptcy or permanent disability of an individual, deemed to have the same position in relation to the control of the corporation as if the person could exercise the voting rights at that time, or

    • (iv) to cause the reduction of voting rights in respect of shares, owned by other shareholders, of the capital stock of a corporation, the person is, except where the right is not exercisable at that time because its exercise is contingent on the death, bankruptcy or permanent disability of an individual, deemed to have the same position in relation to the control of the corporation as if the voting rights were so reduced at that time; and

  • (c) where a person owns shares in two or more corporations, the person shall as shareholder of one of the corporations be deemed to be related to himself, herself or itself as shareholder of each of the other corporations.

• Marginal note:Blood relationship, etc.

  (6) For the purposes of this Act, persons are connected by

  • (a) blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other;

  • (b) marriage if one is married to the other or to a person who is so connected by blood relationship to the other;

  • (b.1) common-law partnership if one is in a common-law partnership with the other or with a person who is connected by blood relationship to the other; and

  • (c) adoption if one has been adopted, either legally or in fact, as the child of the other or as the child of a person who is so connected by blood relationship (otherwise than as a brother or sister) to the other.