Chapter History S1-F5-C1, Related Persons and Dealing at Arm’s Length

Introduction

The purpose of this Chapter History page is to highlight any amendments to the information contained in an interpretation bulletin that is now reflected in a chapter of an income tax folio as well as to identify any subsequent amendments to a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Update November 26, 2015

Minor changes have been made to improve the usability of the income tax folios:

  • the Summary section has been moved to the top of each folio chapter to be more immediately visible and helpful to readers;
  • the Application and Reference sections have been moved to the end of the Chapter which is more appropriate for administrative content of this nature.  However, these sections now appear in the Table of contents for easy access;
  • the statement that folios are only available in electronic format has been moved to the end of the Application section; and
  • the words “as promulgated under the Act” in connection with the Income Tax Regulations have been removed from the Application section, in the interest of using plain language.

Update June 9, 2015

New ¶1.33.1 has been added to reflect the changes to paragraphs (a) and (b) of the definition of personal trust in subsection 248(1) by 2014, c. 39, subsections 71(3) and (4), in force for 2016 and subsequent tax years. 

New ¶1.33.2 has been added to reflect the addition of the definition of graduated rate estate in subsection 248(1) by 2014, c. 39, subsection 71(6). This legislative change comes into force on December 31, 2015. 

¶1.38 has been changed to clarify that the three criteria listed in the paragraph may not be of equal importance in all cases, nor do they all need to be satisfied in all cases. Also, in the French version of the Chapter only, the wording describing the three criteria has been changed for readability.

¶1.39 has been changed by rewording the third sentence to better distinguish between interdependent and independent parties and actions.

New ¶1.44.1 has been added to comment on the relationship between a partnership and a person who is not a partner (see Brown v. Canada, 2003 FCA 192, 2003 DTC 5298 (FCA) and Deptuck v. Canada, 2003 FCA 177, 2003 DTC 5272 (FCA)). 

Update May 2, 2014

General

Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length, replaces and cancels Interpretation Bulletin IT–419R2, Meaning of Arm’s Length.

In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below. Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5 th Supp.), as amended.

Legislative and other changes

Chapter name Related Persons and Dealing at Arm’s Length is new and provides a better description of the contents of this Chapter.

¶1.4 (formerly the first paragraph of ¶4 of IT-419R2) has been revised due to the change from natural parent to legal parent in paragraph 252(1)( a ) by 2005, c. 33, subsection 12(1), in force on July 20, 2005 (Royal Assent) and the repeal of paragraph 252(1)( d ), referring to an adopted child of the taxpayer, by 2005, c. 33, subsection 12(2), in force on July 20, 2005 (Royal Assent).

¶1.5 (formerly the last paragraph of ¶4 of IT-419R2) has been revised to include the death of a child as an event when, generally, the deceased child’s spouse ceases to be a child of the deceased child’s parent.

¶1.9(a) (formerly paragraph (a) of ¶7 of IT-419R2) has been revised due to the change to paragraph (a) of the definition of common-law partner in subsection 248(1) by 2013, c. 34, subsection 358(1), applicable to 2001 et. seq., in force on June 26, 2013 (Royal Assent).

¶1.9(b) (formerly paragraph (b) of ¶7 of IT-419R2) describes situations where a common-law partner’s child will be considered the taxpayer’s child. It has been revised as a result of the changes referred to above in respect of ¶1.4.

¶1.10 (formerly the second paragraph of ¶7 of IT-419R2) has been revised to provide a more concise description of the time when the common-law partnership will be regarded as having ceased to exist.

¶1.11 (formerly ¶8 of IT-419R2) has been revised as a result of the changes referred to above in respect of ¶1.4.

¶1.23 (formerly ¶14 of IT-419R2) has been revised to add a statement that paragraph 251(5)( a ) will not apply where the corporation is controlled by a single person.

¶1.34 (formerly ¶20 of IT-419R2) has been revised to add those trusts that have been added to the list of trusts that are excluded from the personal trusts described in paragraph 251(1)(b) since the last publication of IT-419R2.

¶1.44 (formerly ¶28 of IT-419R2) has been revised to be more consistent with the test in paragraph 251(1)( c ) to find that persons deal with one another at arm’s length in fact where there is no presumption of such a relationship.

¶1.47 - 1.49 are new paragraphs that describe additional relationships affecting trusts.

¶1.53 (formerly ¶32 of IT-419R2) has been revised, similar to ¶1.44 above, to be more consistent with the test in paragraph 251(1)( c ) to find that persons deal with one another at arm’s length in fact where there is no presumption of such a relationship.

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