Importance of Association Rule and ProFile’s Corporate Linking Feature
Rules for Association
ITA S.256 contains the association rules providing the general rules with respect to whether one corporation is associated with another and the exceptional circumstances under which the association of one corporation with another does not occur.
The essential test in determining whether a corporation is associated with another relies on the control of the corporation that is exercised “directly or indirectly in any manner whatever.”
Two corporations can be “related persons” as defined in subsection 251(2) and still not be associated with each other under subsection 256(1). As an example, if 65 per cent of the voting shares of Corporation A are owned by Mr. A and 60 per cent of the voting shares of Corporation B are owned by his brother, Mr. B, the corporations are “related persons” pursuant to subparagraph 251(2)(c)(ii); however, the two corporations would not be associated with each other unless the cross-ownership test in paragraph 256(1)(c)
Importance of the Association Rule
Canadian corporate tax compliance rules require a corporation to disclose their relationships with other corporations. It requires a list of corporation’s related and associated corporations to be reported through corporate tax filing.
Where two or more CCPCs are associated with one another in a taxation year, the annual business limit must be allocated among them.
In addition, where two or more CCPCs are associated with one another in a taxation year and any of them have scientific research expenditures for the year, an expenditure limit on overall scientific research expenditure claims for investment tax credit purposes must be allocated among them irrespective of whether the corporation is taxable in the year
Corporate linking in ProFile T2 software
T2 filers can now easily import data from a ProFile T2 file into the new or manual RAC Details form of the filing corporation using ProFile’s Corporate Linking function. Any changes to the linked T2 files or the linked RAC Details entry of the filing corporation is highlighted and can be updated with a few clicks.