A non-arm's-length transfer is a transfer of property between persons the Income Tax Act treats as related — such as family members, or a corporation and a person who controls it. Under paragraph 251(1)(a), related persons are deemed not to deal at arm's length regardless of how they actually deal with one another, and several rules can apply to such transfers.
Two consequences are common. Subsections 69(1) and (2) can deem a below-value sale to occur at fair market value, triggering a capital gain for the transferor even though little or no cash changed hands. Section 160 of the Income Tax Act (and section 325 of the Excise Tax Act for GST/HST) can make the recipient of property from a tax debtor jointly liable for the transferor's tax, up to the value received over what was paid. Because of these rules, transfers to family members deserve careful tax advice, especially where the transferor may owe tax.