3520-5- updated 2009-jfth - 3520-5 Last updated on 1-4 1...

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3520-5: Last updated on 9/15/09 1-4 1 Lecture 5: Non-Arm’s Length Transactions, Departure from Canada and Death of a Taxpayer 1.1 Recommended Exercises and Self-study Problems exercises 7-8, 7-9, 7-18, 7-19, 8-8, 8-9, 8-10, 10-4, 20-20 self-study problems 7-3, 7-9 (ignore the part about farm land), self-study problem 8-5 (ignore the part about farm land), 8-6 2 Non-Arm's Length Transfers [CTP 7-65 to 7-91] The Non-arm’s length transaction rules determine the deemed proceeds of disposition and adjusted cost base (ACB) for gifts and transfers to non-arm's length persons. This is relevant for determining: (a) the capital gain at the time of the transfer and (b) the future capital gain to the new owner of the property (when he/she sells the property) Rules apply to transfers (gifts or sales) when the transfer is between persons (individuals, corporations, etc.) who are not at “arm’s length” see example at 7-73 for a theoretical tax avoidance opportunity in non-arm’s length transfers ITA 251(1): Related persons are deemed to not deal with each other at arm's length It is a question of fact whether others deal at arm's length Related = connected by blood, marriage, adoption Connected by blood = child, parent, grandparent (and great-grandparent, great-great grandparent, etc.) = brother, sister = horizontal or vertical relationship on family tree But not aunts, uncles, nieces, nephews, cousins Related by marriage = spouse and in-laws e.g. mother-in-law, daughter-in-law, sister (or brother)-in-law 2.1 Inadequate Consideration [ITA 69] the transaction price – the deemed proceeds of disposition that help determine the capital gain or income to the transferor) and the ACB (that helps determine the future capital gain or income to the transferee when he/she sells the property) All gifts are deemed dispositions at FMV (even gifts to arm’s length persons) except for gifts to spouses [ITA 69 and 73(1)] See Figure 7-1 Jason Fleming [[email protected]]
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3520-5: Last updated on 9/15/09 2-4 2.2 Sales to non-arm's length persons Sales to non-arm’s length persons should take place at FMV except for transfers to spouses
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