ADMS 4562 Lecture Notes - Lecture 12: Tax Rate, Income Splitting
11 May 2018
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3520-5: last updated on October 14, 2014 1-6
This edition of the notes was updated by Priya Shah [p_shah@yorku.ca].
1 Lecture 6: Non-Arm’s Length Transactions, Departure from Canada and Death of a
Taxpayer
1.1 Recommended Exercises and Self-study Problems
▪ exercises 9-8, 9-9, 8-15, 8-16, 9-15, 9-16, 9-17, 11-10, 20-16, 20-17, 20-19
▪ self-study problems 9-7, 9-9 (ignore the part about farm land),
▪ self-study problems 9-11 (ignore the part about farm land), 9-12
2 Non-Arm's Length Transfers [CTP 9-141 to 9-171]
▪ 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 9-167 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]
▪ 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 9-2
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
because the one-sided adjustment in ITA 69 is intentionally harsh
▪ If the sales price is > FMV, the purchaser's ACB is deemed to be FMV
▪ If the sales price is < FMV, the seller's proceeds of disposition is deemed to be FMV
▪ Sales price too low (< FMV) is the more common situation
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lecture 6: non-arm"s length transactions, departure from canada and death of a. Recommended exercises and self-study problems exercises 9-8, 9-9, 8-15, 8-16, 9-15, 9-16, 9-17, 11-10, 20-16, 20-17, 20-19 self-study problems 9-7, 9-9 (ignore the part about farm land), self-study problems 9-11 (ignore the part about farm land), 9-12. 2: 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. Ita 251(1): related persons are deemed to not deal with each other at arm"s length. Inadequate consideration [ita 69: 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 9-2. 2. 2: sales to non-arm"s length persons should take place at fmv except for transfers to spouses because the one-sided adjustment in ita 69 is intentionally harsh. If the sales price is > fmv, the purchaser"s acb is deemed to be fmv.
