Each of the following six situations is independent. Assume all individuals are over the age of 18 unless otherwise noted.
1. Susan owns 100% of her holding company, Susan Inc., which owns 43% of the issued common shares of Sumi Inc. Mike owns 8% of Sumi and Agnes, an unrelated individual, owns the remaining 49% of Sumi. Susan and Mike are siblings.
2. Vicki owns 75% of the common shares of Vicki Inc. with the other 25% being owned by an unrelated individual. Marc owns 55% of Marc Inc. with the other 45% of the common shares owned by Vicki Inc. Vicki is Marc’s mother.
3. Matt, Bill and Marg are brothers and sister. Each owns 1/3 of the shares of Sibling Inc. Carol and Matt are married to each other and each owns 50% of the shares of Spouses Inc.
4. Connie owns 100% of the common shares of Connie Inc. Aileen owns 100% of the common shares of Aileen Inc. with a current value of $350,000. Connie, who is Aileen’s husband’s grandmother, lent $190,000 to Aileen Inc. in June, 1998.The loan bears interest at the current bank rate plus 1/2% and is due on demand.
5. Andrew and Cheryl are first cousins and each owns 50% of the common shares of Breton Inc. The value of a 50% shareholding of Breton Inc. is $45,000.Arch owns 100% of the common shares of Arch Inc. Arch is Andrew’s and Cheryl’s grandfather and owns the one and only non-voting redeemable preference share in Breton Inc. which was issued for $50,000 in March 1995.The preferred share is redeemable at $100,000. (The preference share is not a share of a specified class as defined in ITA 256(1.1)).At all relevant times during the company’s taxation year the value of the preference share was $100,000 and the value of all the Breton Inc. common shares was $90,000.
6. Jeff and Valerie are spouses who each own 100% of their respective companies, Jeff Inc. and Valerie Inc. Chelsea Inc. is 100% owned by Chelsea. Chelsea is Jeff’s and Valerie’s 16 year-old daughter.
Required:
In each of situations outline the reasons why any of the corporations are associated. Support your answer with references from the Income Tax Act. Assume that there is no indirect influence which, if exercised, could result in de facto control except in situation 4. Also, assume the anti-avoidance provision in ITA 256(2.1) would not apply to otherwise deem the corporations to be associated.