TAX NOTES | HTK Consulting
AFFILIATED PERSONS AND STOP LOSS RULES
The following are affiliated persons for tax purposes:

(a) an individual and a spouse or common-law partner

(b) a corporation and

o
(i) a person by whom the corporation is controlled
o
(ii) each member of an affiliated group of persons by which the corporation is controlled
o
(iii) a spouse or common-law partner of a person described in subparagraph (i) or (ii);
(c) two corporations, if
o
(i) 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,
o
(ii) 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
o
(iii) 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;

(d) a corporation and a partnership, if the corporation is controlled by a particular group
of persons each member of which is affiliated with at least one member of a majority-interest
group of partners of the partnership, and each member of that majority-interest group is
affiliated with at least one member of the particular group;

(e) a partnership and a majority interest partner of the partnership;

(f) two partnerships, if
o
(i) the same person is a majority-interest partner of both partnerships,
o
(ii) a majority-interest partner of one partnership is affiliated with each member of
a majority-interest group of partners of the other partnership, or
o
(iii) each member of a majority-interest group of partners of each partnership is
affiliated with at least one member of a majority-interest group of partners of the other
partnership;
Notes Prepared by HTK Consulting | www.htkconsulting.com
TAX NOTES | HTK Consulting
What is the implication of being affiliated?
Transfers between spouses or common-law partners
The superficial loss rules apply when the transferor is an individual. In general, a superficial loss occurs
when the following three conditions are met:
1. An individual disposes of a particular property that triggers a capital loss;
2. The individual or an affiliated person acquires that property or an identical property during the
period that begins 30 days before and ends 30 days after the disposition; and
3. At the end of the period, the individual or the affiliated person owns the property.
Under the superficial loss rules, the loss is denied and is added to the adjusted cost base (ACB) of the
substituted property.
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 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:
o The recipient corporation has disposed the asset to a non-affiliated party or
o An deemed disposition occurs or
o An Acquisition of Control occurs
Once one of these are 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.
Notes Prepared by HTK Consulting | www.htkconsulting.com