Related persons are not considered to deal with each other
at arm's length. Related persons include individuals connected by a blood
relationship, marriage or common-law partnership, or adoption (legal or in
fact).S1-F5-C1- Related Persons and Dealing at arm's Length
Also, a corporation and a
shareholder who controls the corporation are related. Control here mean more than 50% of the voting shares. Two
corporations can also be "related persons".IT64R4- Corporations: Associations and Control
If property is transferred for a consideration greater than
the FMV to a person who does not deal at arm’s length with the transferor, the
acquirer is deemed to have acquired it at FMV.
Its cost for tax purposes is therefore less than the price paid. For the
vendor, there is no price adjustment and the actual selling price constitutes
the proceeds of disposition.
If property is transferred for a consideration less than the
FMV to a person who does not deal at arm’s length with the transferor, the
transferor is deemed to have transferred the property at FMV and the cost to
the acquirer for tax purposes is equal to the consideration paid. There is
therefore a risk of double taxation.
If depreciable property is transferred in a non-arm’s length
deal, the acquirer’s capital cost, for CCA purposes only, is equal to the
transferor’s capital cost plus 50% of the capital gain realized by the
transferor. Also, where the transferor is an individual and the property was
eligible for the CGD, the capital cost for the acquirer must be reduced by the
amount of CGD claimed by the transferor.
In the case of a gift, the transferor is deemed to dispose
of the property and the beneficiary of the gift is deemed to acquire it at FMV.
If you donate capital property, you must report any capital gain on your return
and in some cases, you may be able to claim a capital loss in the year you
donated the property. Under certain situations, the donor can designate the
transfer price between FMV and adjusted cost base of the property donated and
thus can reduce or avoid the capital gain on donation.
For tax purposes, the eligible amount of the gift is the
amount by which the fair market value (FMV) of the gifted property exceeds the
amount of an advantage, if any, received or receivable for the gift.
