Principal Issues: Whether, in a particular situation where an individual would sell his or her shares of a corporation to the holding company created by his or her niece or nephew and where the said individual would not be deemed by paragraph 84.1(2)(b) not to be dealing at arm's length with the holding company, section 84.1 would apply.
Position: Paragraph 251(1)(c) provides that, at a particular time, it is a question of fact whether unrelated persons are dealing with each other at arm's length. Such determination can only be made following the review of all facts relating to a particular situation. The fact that there would only be one tax specialist involved in this type of transaction would not, in and by itself, be conclusive as to the existence of non-arm's length transactions. However, this element, when combined with others, may contribute to the existence of a non-arm's length relationship. The fact that there would be steps undertaken to facilitate the financing may, depending on the facts and circumstances, contribute to the existence of a non-arm's length relationship. This may be the case, for example, where steps undertaken to facilitate the financing would result in one person having control in fact over another person. CCRA would generally not presume that there is a non-arm's length relationship between an uncle or aunt and his or her niece or nephew. However, family ties may be more likely to give rise to non-arm's length relationships, depending on the facts and circumstances. If the children of brothers would systematically acquire, through their wholly-owned corporation, shares owned by their uncle or aunt instead of shares owned by their parents, this would have a significant impact on the determination of whether non-arm's length relationships exist, and thus whether section 84.1 would be applicable. In such circumstances, the application of subsection 245(2) would also have to be considered.
Reasons: Wording of the Act and previous positions.
