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In tax law the concept of Connected Persons arises frequently. They are sometimes defined specifically for a particular section of the Act so that the interpretation of the term “Connected Persons” is by no means easy.

Typically, a taxable transaction between connected persons must be considered to have taken place at Market Prices rather than the actual transaction price. This is an obvious anti-avoidance mechanism and it is therefore important to interpret the definitions correctly.

This article is, therefore, only a rough guide to the meaning of “connected persons” and is intended to alert you to the need to examine the Act (starting with the main definition in s1) carefully or to contact us if you suspect that your transaction may be between connected persons.

Typically persons are connected if –

they are shareholders in the same private company,

they are members of the same close corporation,

one is the holding company, a subsidiary or a co-subsidiary of the other,

they are the founder of a trust and any of its beneficiaries,

they are blood relatives (within the 3rd degree of consanguinity i.e. roughly up to great grand parents and down to great grand children, but sideways too),

they are partners in a partnership,

they are spouses (including life partners).

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