Problem: Voting common shares of Sarah Inc. are owned
- 35% by Jonathan Inc
- 25% by Alexander Inc.
- 40% by an individual, Sarah.
Jonathan Inc. and Alexander Inc. are 100% owned by Jon and Alex, respectively. Their spouses are sisters.
Sarah Inc. derives all of its income from a ladies' wear retailing business carried on in Toronto on a property owned by Jonathan Inc.
Show how Jonathan Inc. and Sarah Inc. are associated. Describe the reasons for this association, in detail, by reference to specific conditions in the Income Tax Act (Canada).