Revenue Canada Taxation Head Office
XXXX
P.K. Tang 957-2103
Attention: XXXX
February 14, 1986
Dear Sirs:
This is in reply to your letter of January 17, 1986, wherein you request our clarification as to whether or not an organization would meet the requirements found in subparagraph 149.1(1)(b)(iii) of the Income Tax Act (the "Act") when its board of directors consisted of 10 people including three sets of brothers, each set of brothers dealing at arm's length with the remaining eight directors.
Our Comments
Subparagraph 149.1(1)(b)(iii) of the Act requires that "more than 50% of the directors, trustees, officers or officials of which deal with each other and with each of the other directors, trustees, officers or officials at arm's length". It is our view that the situation described may not meet the requirements found in this subparagraph for the following reasons:
1. The four "non-brother" directors together with two "brother" directors, each one from a different set of brothers may form a group of "more than 50% of the directors that deal with each other at arm's length".
2. Each director of this group would not be dealing at arm's length with "each of the other directors" of the organization, however, since each of the two brothers in this group would not be dealing at arm's length with his brother.
We trust the above will be of assistance to you.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch