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 unrelated individuals are related for purposes of the Income Tax Act through the application of the provisions contained in sections 251 and 252 of the Act. In the hypothetical situation, René is married to Jacinthe. Jacinthe’s brother, Guy, is married to Sylvie. Are René and Sylvie related?
Position: Yes, René and Sylvie are “related” for purposes of paragraph 251(2)(a) of the Act.
Reasons: See 9508765. In the hypothetical situation described, Sylvie and René would be related by marriage pursuant to paragraph 251(6)(b) of the Act and Jacinthe would be related by blood to her brother, Guy, pursuant to paragraph 251(6)(a) of the Act. Jacinthe would be related by blood to Sylvie as Sylvie is considered to be Jacinthe’s sister pursuant to subparagraph 252(2)(c)(ii) of the Act. René would be related to Sylvie by marriage pursuant to paragraph 251(6)(b) of the Act since he is married to Jacinthe and Jacinthe is related by blood to Sylvie.
October 30, 1998
René Pouliot HEADQUARTERS
CPP/EI Eligibility Division G. Moore
Revenue Collections Directorate 952-1506
7-982746
Meaning of “Arm’s Length”
We are writing in reply to your letter of October 22, 1998, in which you asked for our opinion concerning whether individuals are dealing with each other at arm’s length in a particular hypothetical situation.
In the particular hypothetical situation you described in your letter, Jacinthe is married to René. Jacinthe’s brother is Guy and Guy is married to Sylvie. It is your understanding that Jacinthe is related to her brother, Guy, by blood pursuant to paragraph 251(6)(a) of the Income Tax Act (the “Act”) and that Guy is related to his wife Sylvie, by marriage, pursuant to paragraph 251(6)(b) of the Act. In addition, you believe that Jacinthe is related by blood to Sylvie pursuant to subparagraph 252(2)(c)(ii) of the Act and that René is related by marriage to Sylvie pursuant to paragraph 251(6)(b) of the Act. You have also asked if the result would be the same in this example if René and Jacinthe were common-law spouses and if Guy and Sylvie were common-law spouses pursuant to subsection 252(4) of the Act and if the legislation applies the same way to common-law spouses as it applies to married couples. You have also asked if the extension in section 252 was made for common-law spouses only.
For purposes of the Act, related persons are deemed not to deal with each other at arm’s length. Whether two individuals who are not related to each other at a particular time are dealing with each other at arm’s length is a question of fact which can only be determined after examination of the details of a particular situation. Pursuant to paragraph 251(2)(a) of the Act, for purposes of the Act, related persons or persons related to each other are individuals connected by blood relationship, marriage, or adoption. Paragraph 251(6)(a) of the Act provides that persons are connected by blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other. Paragraph 251(6)(b) of the Act provides that for purposes of the Act, 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)(c)(ii) of the Act provides that a sister of a taxpayer includes a person who is the spouse of the taxpayer’s brother.
The hypothetical situation you described has been addressed in paragraph 4 of IT-419R, Meaning of Arm’s Length. In your situation, Jacinthe would be related by blood to both her brother, Guy, pursuant to paragraph 251(6)(a) of the Act and to Sylvie as Sylvie is considered to be Jacinthe’s sister pursuant to subparagraph 252(2)(c)(ii) of the Act. René would be related to Sylvie by marriage pursuant to paragraph 251(6)(b) of the Act since he is married to Jacinthe and Jacinthe is related by blood to Sylvie.
You have asked if our answer would be the same if the same example involved common-law spouses. Pursuant to the extended definition of “spouse” in subsection 252(4) of the Act, a spouse at any time of a taxpayer includes a person of the opposite sex who cohabits with the taxpayer in a conjugal relationship and has either cohabited with the taxpayer throughout a 12-month period ending before that time, or would be the parent of a child of whom the taxpayer would also be a parent (without reference to paragraph 252(1)(e) and subparagraph 252(2)(a)(iii) of the Act). If Jacinthe and René, and Guy and Sylvie were in common-law relationships with each other, respectively, and the conditions in subsection 252(4) of the Act were met such that Jacinthe and René were considered to be common-law spouses for purposes of the Act and Guy and Sylvie were considered to be common-law spouses for purposes of the Act, then our answer with respect to the blood and marriage relationships between the above-mentioned individuals in the hypothetical example would remain unchanged.
With respect to your enquiry as to whether the extension in section 252 was made for common-law spouses only, we are not certain to which subsection in section 252 of the Act you are referring. However, assuming your enquiry pertains to the intention behind subsection 252(4) of the Act, the 1992 Budget Supplementary Information does indicate that “This budget proposes to treat common-law couples the same as married couples under the tax system for 1993 and subsequent years.”
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
We trust our reply will be of assistance in this matter.
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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