The affiliated persons clause defines how you must handle costs when working with related individuals or organizations.
What is an affiliated person
An affiliated person is a person or entity that has a close relationship with you, including:
Shared ownership
Shared management or personnel
An existing business relationship
This definition follows the Income Tax Act.
Rules for affiliated costs
If you purchase goods or services from an affiliated person, the costs must meet strict limits.
Fair market value
You must ensure that:
Costs do not exceed fair market value
If no market value exists
You must use one of the following:
Value of similar goods or services
Actual direct costs plus:
Overhead (as defined in your agreement)
Maximum 5% profit
Disclosure requirement
You must:
Identify all affiliated persons at the start of the project
Disclose any relationships clearly
Special case: wholly owned subsidiaries
If a wholly owned subsidiary performs work:
You claim the costs on their behalf
Costs are treated as if you incurred them directly
Key requirement
All affiliated transactions must be transparent, justified, and priced fairly.