Related persons

Family sellers and buyers meet this definition because Income Tax Act rules refer to it, including the arm’s-length test in subsection 251(1) and the acquisition-of-control rules in subsection 256(7). The Act sets out who is related. It does not leave the question to the parties’ own description of their relationship.

Who the Act lists

• Individuals connected by blood relationship, marriage, common-law partnership or adoption, as subsection 251(6) explains
• A corporation and a person who controls it, or a member of a related group that controls it, and any person related to either of them
• Two corporations controlled by the same person or group, or by persons who are themselves related, in the ways paragraph 251(2)(c) lists

What to check

Paragraph 251(1)(a) deems related persons not to deal at arm’s length, so the arm’s-length test follows. For the purposes of subsection 251(2), subsection 251(5) also treats some rights to acquire shares as ownership when deciding control. “Affiliated persons” under section 251.1 is a separate concept, so confirm which one a given rule uses. See selling to a child’s company.