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.
Dear Sirs:
This is in reply to your letter of September 6, 1990 requesting our opinion as to whether or not, for purposes of section 251 of the Income Tax Act (the "Act") XXX and its individual members are considered to be "related persons", and consequently, whether or not they are considered to deal with each other at arm's length.
XXX
Section 251 of the Act refers to two classes of persons in determining whether or not persons deal with each other at arm's length. The first class of persons is "related persons" as defined in subsection 251(2) who are deemed not to deal with each other at arm's length. The second class is "persons not related to each other" or unrelated persons.
Our Comments
It seems clear that the members XXX not related and therefore we will provide our views only as to unrelated persons. It is a question of fact whether any combination of members are dealing at arm's length. In the absence of a better definition, a transaction at arm's length could be considered to be a transaction between persons between whom there are no bonds of dependence, control or influence, in the sense that neither of the two co-contracting parties has available any moral or psychological leverage sufficient to diminish or possibly influence the free decision-making of the other. Inversely, the transaction is not at arm's length where one of the co-contracting parties is in a situation where he may exercise a control, influence or moral pressure on the free will of the other. In the situation described XXX. Therefore, we refer you to paragraphs if through 14 of Interpretation Bulletin IT-419 which sets out our general guidelines about certain relationships. These criteria, which have been examined by the courts, are as follows:
- (a) the existence of a common mind which directs the bargaining for both parties to a transaction,
- (b) parties to a transaction acting in concert without separate interests, and
- (c) `de facto' control.
Where one person (or a group of persons) is, in fact, the bargaining agent, or the mind by which the bargaining is directed, on behalf of both (or all) parties to a transaction, then the parties cannot be dealing at arm's length. Even when there are two distinct parties (or minds) to a transaction, but these parties act in a highly interdependent manner (in respect of a transaction of mutual interest) then it can be assumed that the parties are acting in concert, and hence not at arm's length. Nevertheless, a common purpose is not conclusive. Different interests are considered to exist when each party has completely independent interests from the other parties to a transaction, notwithstanding the fact that each party may have the `same' purpose of economic gain. De facto control depends upon authority or influence rather than legal control.
In the particular example at hand XXX
We trust our comments will prove helpful.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1990
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1990
Email this Content