Two individuals equally own a corporation and have equal interests in a professional partnership. The corporation on-lends the proceeds of a loan received from a financial institution to the partnership at a slightly higher interest rate, with the partnership using the lent money in its operations instead of using a current line of credit.
Does s. 15(2) apply to the loan received by the partnership from the corporation? In responding affirmatively, CRA noted (as per its summary) that “[d]espite Gillette … we have repeatedly stated that the term "person connected with a shareholder of a particular corporation" in subsection 15(2.1) can include a partnership,” and further stated:
Since … the partnership and the corporation are owned by the same two individuals, we are led to believe that these individuals act in concert and control the partnership together, so that they are not dealing at arm's length with the partnership.