Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: 1. Is the surviving spouse still related to her deceased spouse's brothers after the death? 2. Is a surviving spouse dealing at arm's length with the deceased spouse's brothers after that time?
Position: 1. Based on facts, they cease to be related. 2. Question of fact.
Reasons: The law.
XXXXXXXXXX 2003-000289
M. Cooke
March 11, 2003
Dear XXXXXXXXXX:
RE: Meaning of Related Persons and Non-Arm's Length
We are writing in reply to your letter of February 10, 2003, in which you asked for our opinion concerning whether two or more individuals are dealing with each other at arm's length in a particular fact situation.
In the situation described in your letter, three brothers own all the shares of a taxable Canadian corporation ("Opco") in equal proportions (i.e. 1/3rd each). One of the three brothers dies and, pursuant to the terms of his will, his surviving spouse acquires ownership of all his shares of Opco. You ask whether the surviving spouse will still be related to her spouse's two brothers under paragraph 251(2)(a) of the Income Tax Act (the "Act") after her spouse's death and, if not, whether she would be considered to deal at arm's length with each of them under subsection 251(1) of the Act.
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 29, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following comments.
For purposes of the Act, paragraph 251(2)(a) includes individuals who are connected by blood relationship or marriage as related persons. Paragraph 251(6)(a) provides, inter alia, that persons are connected by blood relationship if one is the brother or sister of the other and paragraph 251(6)(b) provides that persons are connected by marriage if one is married to the other or to a person who is connected by blood relationship to the other. In addition, subparagraph 252(2)(b)(i) provides, inter alia, that a brother of a taxpayer includes a person who is the brother of the taxpayer's spouse.
However, when a marriage ends because of the death of one of the spouses, the "surviving spouse" would cease to be a spouse of the deceased, and thus, such persons would no longer be "connected by marriage" under paragraph 251(6)(b) at that time. As a result, the surviving spouse would ordinarily cease to be "connected by blood", under paragraph 251(6)(a), to their former spouse's family members.
Consequently, in the fact situation described above, it is our view that the "surviving spouse" would cease to be related to her former spouse's brothers after his death. However, the determination as to whether such persons would otherwise be considered to deal with each other at arm's length remains a question of fact that can only be determined after examination of all the details of a particular situation.
The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R5.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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