Affiliated Corporations and Stop Loss Rules
Affiliated Corporations and Stop Loss Rules
Affiliated Corporations
The following are affiliated persons for tax purposes:
- a corporation and
- a person by whom the corporation is controlled
- each member of an affiliated group of persons by which the corporation is controlled
- a spouse or common-law partner of a person described in subparagraph (i) or (ii);
- two corporations, if
- each corporation is controlled by a person, and the person by whom one corporation is controlled is affiliated with the person by whom the other corporation is controlled,
- one corporation is controlled by a person, the other corporation is controlled by a group of persons, and each member of that group is affiliated with that person, or
- each corporation is controlled by a group of persons, and each member of each group is affiliated with at least one member of the other group;
What is the implication of being affiliated?
Transfers from individuals to corporations:
- Capital Losses are denied and added to the ACB of the transferred property.
- This is commonly found in section 85 rollovers, where a non-depreciable capital asset transferred to a holding company has depreciated in value (i.e. fair value < ACB); the losses simply are denied and are added to the ACB of the property transferred.
If depreciable capital assets are transferred (i.e. real-estate), the terminal losses are denied and stay with the transferor until the asset is ultimately disposed to a non-affiliated party.
Transfers between corporations:
- The Capital losses are denied
- However, instead of adding the denied loss to the ACB of the transferred property, the loss is denied in the hands of the transferor until:
- The recipient corporation has disposed the asset to a non-affiliated party or
- A deemed disposition occurs or
- An Acquisition of Control occurs
- Once one of these conditions is met, the transferor can claim the capital loss.
If depreciable capital assets are transferred (i.e. real-estate), the terminal losses are denied and stay with the transferor until the asset is ultimately disposed to a non-affiliated party.