Related Corporations and Non-Arm’s Length (NAL) Transfers
Related Corporations and Non-Arm’s Length (NAL) Transfers
Related Corporations:
A corporation is related to the following persons:
- a person who controls the corporation, if it is controlled by one person,
- a person who is a member of a related group that controls the corporation, or
- any person related to a person described in (i) or (ii);
Any two corporations are related if:
- they are controlled by the same person or group of persons,
- each of the corporations is controlled by one person and the person who controls one of the corporations is related to the person who controls the other corporation,
- one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation,
- one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation,
- any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation, or
- each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation.
Corporations related through a third corporation
Where two corporations are related to the same corporation, they shall be deemed to be related to each other.
What are the implications of being related?
Non-Arm’s Length Transfers (s69) rules take effect:
| Actual Proceeds | Proceeds to transferor | Cost to transferee |
| All gifts | FMV | FMV |
| POD(50)<FMV(100) | FMV $100 | Actual amount $50 |
| POD(100)>FMV(50) | Actual amount $100 | FMV $50 |
| POD=FMV | FMV | FMV |
Transfer Pricing:
Therefore, when transferring assets to a related party you should either transfer the assets at fair value or gift the assets to avoid double taxation.