Mr. Hanes owns 100 percent of the common shares of Jimbo Corp. and 40 percent of the common shares of Hughes Corp. Hughes Corp. owns 80 percent of the common shares of ARC Ltd. Mr. Hanes' daughter-in-law also owns 5 percent of the common shares of Hughes Corp., and 15 percent of the common shares of ARC Ltd. The remaining shares are held by parties who deal at arm's length with Mr. Hanes and his daughter-in-law. The following Companies are associated under ITA 256 of the Income Tax Act:

Question

Quizplus · Accepted Answer

Under ITA 256, two corporations are associated if one corporation owns, directly or indirectly, 25 percent or more of the equity shares of the other corporation. In this scenario, Hughes Corp. owns 80 percent of the common shares of ARC Ltd., which meets the requirement for association. Also, Mr. Hanes owns 40 percent of the common shares of Hughes Corp., which combined with his daughter-in-law's 5 percent share, equals 45 percent, meeting the requirement for association between Hughes Corp. and Mr. Hanes' daughter-in-law. Finally, since Mr. Hanes owns 100 percent of the common shares of Jimbo Corp., it is associated with Hughes Corp. based on Mr. Hanes' ownership in both corporations. Therefore, both Hughes and ARC, and Jimbo and ARC are associated, making choice C the best answer.

Mr Hanes Owns 100 Percent of the Common Shares of Jimbo