Arm's length

Arm's length refers to a relationship or transaction between two persons who act in their separate interests. Related persons are not considered to be dealing with each other at arm's length. Related persons include individuals connected by a blood relationship, marriage, common-law partnership, or adoption (legal or in fact). A corporation and an individual, or two corporations, may also be related persons.

Unrelated persons might not be dealing with each other at arm's length at a particular time. For example, one person is under the influence or control of the other, or the persons are considered to be acting together. Each case depends upon its own facts.

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length. Meaning of Arm's Length.

Arm's length transaction: This is a transaction between persons who act independently of each other. Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by a blood relationship, marriage or common-law partnership, or adoption (legal or in fact). Also, a corporation and a shareholder who controls the corporation are related.

Unrelated persons usually deal with each other at arm's length. However, this might not be the case if one person is under the influence or control of the other, or if the persons are considered to be acting in concert.

For more information on these transactions, see Interpretation Bulletin IT-419, Meaning of Arm's Length.