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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether two corporations are related and/or associated in the situation where a half-brother and half-sister control each of the corporations and the mother/step-mother who has not adopted the step-children owns more than 25% of the shares in both corporations after the death of the father of the two children.
Position TAKEN:
The two corporations are related. It is a question of fact as to whether they are associated.
Reasons FOR POSITION TAKEN:
Since the half-brother and half-sister are connected by blood they are related pursuant to paragraph 251(2)(a) and therefore the two corporations they control are related by virtue of subparagraph 251(2)(c)(ii).
Since the stepmother has not adopted the step-son, they do not constitute a related group that controls a corporation and therefore subsection 256(1) does not apply. Subsection 256(2.1) may apply to deem the two corporations to be associated.
942994
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
April 13, 1995
Dear Sirs:
This is in reply to your letter dated November 21, 1994 with respect to the determination of whether Opco 1 and Opco 2 are "related", within the meaning of paragraph 251(2)(c) of the Income Tax Act (the "Act") and whether they are "associated", within the meaning of subsection 256(1) of the Act, in the following situation.
Mr. X and his first wife had a son, hereinafter referred to as A.
Mr. X's first wife passed away. Mr. X married Mrs. Y and they had a daughter, hereinafter referred to as B.
A was never wholly dependent upon Mrs. Y as he turned 19 two weeks after Mr. X and Mrs. Y were married.
A owns 67% and Mrs. Y owns 33% of the common shares of Opco 1.
B owns 67% and Mrs. Y owns 33% of the common shares of Opco 2.
Pursuant to subparagraph 251(2)(c)(ii) of the Act, two corporations are related if they are each controlled by one individual and the individuals who control each of the corporations are related. Pursuant to paragraph 251(2)(a) of the Act, two individuals are related if they are connected by blood relationship. Pursuant to paragraph 251(6)(a) of the Act, two individuals are connected by blood relationship if one is the child of the other or one is the brother or sister of the other.
A and B are connected by blood relationship by virtue of the fact that Mr. X is their father and they are half-brother and half-sister to each other. Although the Act does not specifically include half-brothers and half-sisters in the definition of brother and sister in paragraphs 252(2)(b) and (c) of the Act, respectively, the definition of "brother" in Black's Law Dictionary states that a person "is a brother "of the half blood" to that other (or half-brother) when the two are born to the same father..." and states that for civil law, "two brothers who descend from the same father, but by different mothers, are called "consanguine" brothers." Black's Law Dictionary defines "sister" as "a woman who has the same father and mother with another, or has one of them only. In the first case, she is called sister, simply: in the second, half-sister. The word is the correlative of "brother"."
It is therefore our view that Opco 1 and Opco 2 are related to each other by virtue of subparagraph 251(2)(c)(ii) of the Act as each of the corporations is controlled by one individual who is related to the individual who controls the other corporation.
Pursuant to paragraph 256(1)(e) of the Act, two corporations are associated if each of the corporations is controlled, directly or indirectly in any manner whatever, by a related group and each of the members of one of the related groups was related to all of the members of the other related group, and one or more persons who were members of both related groups, either alone or together, owned, in respect of each corporation, not less than 25% of the issued shares of any class, other than a specified class of the capital stock thereof. Pursuant to subparagraph 256(1.2)(b)(ii) of the Act, a corporation may be controlled by a person or a particular group of persons notwithstanding that the corporation is also controlled or deemed to be controlled by another person or group of persons. Therefore, for purposes of paragraph 256(1)(e) of the Act, A and Mrs. Y would constitute a group of persons that controls Opco 1 and B and Mrs. Y would constitute a group of persons that controls Opco 2.
Although A and B are related to each other as discussed above, and Mrs. Y is related to B by virtue of paragraph 251(2)(a) of the Act, it is our view that Mrs. Y and A will only be related to each other if Mrs. Y has adopted A. Our view is based on the decisions in Pembroke Ferry Limited v. M.N.R. (52 DTC 255) and the Estate of Karna May v. M.N.R. (88 DTC 1189). Consequently, Opco 1 and Opco 2 would not be associated with each other under subsection 256(1) of the Act in the situation where Mrs. Y has not adopted A since Mrs. Y and A would not be a related group that controls Opco 1 for the purposes of paragraph 256(1)(e) of the Act. However, we are unable to provide any comments as to whether the two corporations may be associated under subsection 256(2.1) of the Act.
These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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