TAXX 401|TAXX 401v35: Assignment 2 –
Solutions 2026-2027 Canadian Tax
Principles Athabasca University
Solution to AP 14-4 (25%)
Case A
Sarnen Inc. and Barxo Ltd. are associated under ITA 256(1)(b) as they are both controlled by
Mr. Bond.
As Mr. Bond controls Sarnen Inc. through his 55% ownership of the corporation’s shares, he
controls that corporation’s 40% interest in Barxo Ltd. However, as Mr. Bond does not control
Hax Ltd., his indirect interest of Barxo through Hax is the product of the two ownership
percentages. In addition, he is deemed to own the shares held by his 10-year-old daughter.
Mr. Bond’s indirect control of Barxo Ltd. is calculated as follows:
Indirect Interest Through Sarnen 40.0%
Indirect Interest Through Hax [(14%)(54%)] 7.6%
Minor Daughter’s Holdings 6.0%
Total Interest = Control 53.6%
Hax and Barxo are also associated by ITA 256(1)(a) since Hax owns more than 50% of the
shares of Barxo.
Finally, Hax and Sarnen are associated as a result of ITA 256(2) since they are each
associated to the same third corporation, Barxo. An election would be required by Barxo to
break the associated connection between Hax and Sarnen.
Subtotal: 11 Marks
Case B
Mr. Vo and Mr. Long are a group that controls Anix Inc. However, as a group they do not
control Brex Ltd., as Mr. Joby (not a member of the group that controls Anix Inc.) owns 50%
of the shares. Therefore, Anix Inc. and Brex Ltd. are not associated.
Subtotal: 4 Marks
Case C
Sam Scully, by virtue of his 60% ownership, controls Scully Inc. A related person, Susan
Wilson, controls Wilson Ltd. Susan also owns more than 25% of Scully Inc. Given this, Scully
Inc. and Wilson Ltd. are associated under ITA 256(1)(c). In addition, the two corporations
would also be considered associated under ITA 256(1)(b) as both corporations are controlled
by the same group of Susan and Sam (e.g., they each own shares in both corporations that
TAXX401v35_Assignment2_Solutions 1 © Athabasca University, February 2026
, together exceed 50%).
Subtotal: 7 Marks
TAXX401v35_Assignment2_Solutions 2 © Athabasca University, February 2026
Solutions 2026-2027 Canadian Tax
Principles Athabasca University
Solution to AP 14-4 (25%)
Case A
Sarnen Inc. and Barxo Ltd. are associated under ITA 256(1)(b) as they are both controlled by
Mr. Bond.
As Mr. Bond controls Sarnen Inc. through his 55% ownership of the corporation’s shares, he
controls that corporation’s 40% interest in Barxo Ltd. However, as Mr. Bond does not control
Hax Ltd., his indirect interest of Barxo through Hax is the product of the two ownership
percentages. In addition, he is deemed to own the shares held by his 10-year-old daughter.
Mr. Bond’s indirect control of Barxo Ltd. is calculated as follows:
Indirect Interest Through Sarnen 40.0%
Indirect Interest Through Hax [(14%)(54%)] 7.6%
Minor Daughter’s Holdings 6.0%
Total Interest = Control 53.6%
Hax and Barxo are also associated by ITA 256(1)(a) since Hax owns more than 50% of the
shares of Barxo.
Finally, Hax and Sarnen are associated as a result of ITA 256(2) since they are each
associated to the same third corporation, Barxo. An election would be required by Barxo to
break the associated connection between Hax and Sarnen.
Subtotal: 11 Marks
Case B
Mr. Vo and Mr. Long are a group that controls Anix Inc. However, as a group they do not
control Brex Ltd., as Mr. Joby (not a member of the group that controls Anix Inc.) owns 50%
of the shares. Therefore, Anix Inc. and Brex Ltd. are not associated.
Subtotal: 4 Marks
Case C
Sam Scully, by virtue of his 60% ownership, controls Scully Inc. A related person, Susan
Wilson, controls Wilson Ltd. Susan also owns more than 25% of Scully Inc. Given this, Scully
Inc. and Wilson Ltd. are associated under ITA 256(1)(c). In addition, the two corporations
would also be considered associated under ITA 256(1)(b) as both corporations are controlled
by the same group of Susan and Sam (e.g., they each own shares in both corporations that
TAXX401v35_Assignment2_Solutions 1 © Athabasca University, February 2026
, together exceed 50%).
Subtotal: 7 Marks
TAXX401v35_Assignment2_Solutions 2 © Athabasca University, February 2026
