In an arm’s length transaction persons will act in their separate interest. It is a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.
Related persons are not considered to deal with each other at arm’s length.
Persons connected by blood relationship, marriage, common-law partnership or adoption are considered related persons.
A corporation and another person or two corporations may also be considered as related persons.
Unrelated persons may not be dealing with each other at arm’s length at a particular time. Each case will depend upon its own facts.
The following criteria will be considered to determine whether parties to a transaction are not dealing at arm’s length.
1 – Whether there is a common mind which directs the bargaining for the parties to a transaction.
2 – Whether the parties to a transaction act in concert without separate interests.
3 – Whether there is a de facto control of one party by the other because of advantage, authority or influence.
The Accounting and Tax