Association is based on control. Control can be exerted either directly or indirectly in any way. A person or a group of persons can control a corporation. A person can be either an individual or a corporation. Control includes “de jure” control which is usually just simply owning the majority of the votes. Control also includes “de facto” control which occurs when a person has direct or indirect influence strong enough to control even though they do not have the votes. For example, signing authority.

There are many ways corporations can be associated. For instance, a shareholder owns Company A which in turn owns Company B. These companies are associated as they are ultimately controlled by one person. Another example would be when the shareholder owns the majority of shares directly in Company A and Company B. If you have multiple groups of companies with numerous shareholders you have to identify the relationship between each company very carefully. Failure to identify all the associated companies on schedule 9 can result in negative tax consequences.

If you are a Canadian-controlled private corporation (CCPC) with an association, then you may be required to complete a schedule 23 to assign the percentage of the Small Business Deduction limit to each associated corporation. If you do not complete this schedule (which is related to schedule 9) correctly, it could result in you declaring too much income at the low rate of tax which would mean interest and penalties on the tax that was not paid.