Affiliated Corporations and Stop Loss Rules

Affiliated Corporations and Stop Loss Rules

Affiliated Corporations

The following are affiliated persons for tax purposes:

  1. a corporation and
    1. a person by whom the corporation is controlled
    2. each member of an affiliated group of persons by which the corporation is controlled
    3. a spouse or common-law partner of a person described in subparagraph (i) or (ii);
  2. two corporations, if
    1. 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,
    2. 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
    3.  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.

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