Am arm’s length transaction is a transaction between persons who each act in their own self-interest. Related persons are not considered to deal with each other at arm’s length.
Related persons include:
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- individuals connected by blood, marriage, common-law partnership, or adoption; and
- a corporation and a shareholder who controls the corporation
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.