If two friends each own separate companies that do business together, are those companies associated for tax purposes?

Generally, no. Two corporations owned by unrelated friends who simply do business together, buying from or selling to each other, or collaborating on projects, aren't automatically associated under the Income Tax Act just because of that commercial relationship. Association generally requires an actual control connection: common ownership or control, a relationship between the owners that the rules specifically treat as related, or one of the more particular deeming provisions that bring separately owned corporations together for these purposes, simply transacting with another company you don't otherwise control or share ownership with doesn't meet that bar on its own.

This is an important distinction from the associated corporation scenarios that do come up frequently, like spouses or siblings each owning separate companies, where the relationship between the owners themselves is what creates the risk. Two friends who happen to do business together, without any cross-ownership or control connection between their respective corporations, are generally just two independently controlled businesses transacting with each other in the ordinary course.

That said, if the friends' arrangement involves cross-ownership, shared decision-making authority, or other features that start to look like joint control of both businesses, the analysis can change, so it's still worth confirming the specific ownership and control structure rather than assuming ordinary business dealings between friends are automatically risk-free.