1 December 2000 External T.I. 2000-0011895 - back to back loans - section 1717

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Application of 248(28) to a back-to-back lending arrangement where subsection 17(1) applies to the direct loan and subsection 17(2) applies to the subsequent loan.

Position: Subsection 248(28) does not apply.

Reasons: The law.

XXXXXXXXXX 		2000-001189

Attention: XXXXXXXXXX

December 1, 2000

Dear Sirs:

Re: Back-to-Back Loans and Section 17

This is in reply to your letter of March 1, 2000 wherein you requested our opinion as to the income tax consequences under the Income Tax Act ("the Act") in a situation where funds are loaned by a corporation resident in Canada to a related non-resident person and that non-resident person subsequently re-loans those funds to other related non-resident persons (i.e. on a back-to-back loan basis). The exception in subsection 17(3) of the Act would not apply to these loans.

Under such an arrangement you indicate that, by virtue of subsection 17(2) of the Act, the Canadian corporation may have multiple income inclusions under subsection 17(1) of the Act for what are in essence the same loan amount. Specifically, you ask whether subsection 248(28) of the Act would apply in such a situation.

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.

Subsection 248(28) provides that, unless a contrary intention is evident, no provision should be interpreted to require an amount to be included or deducted more than once in computing a taxpayer's income. Generally speaking, subsection 248(28) is aimed at providing relief in situations where two provisions of the Act apply to require an inclusion in income or permit a deduction from income of the same amount.

We are of the view that subsection 248(28) does not affect the application of section 17 in the circumstances described in your letter since section 17 does not require a particular amount to be included in income more than once. That is, section 17 requires only one income inclusion in respect of any particular amount owing. For example, a Canadian resident corporation could be required to include an amount in income in respect of an amount owed to it by a non-resident person (the "first amount") and also be required to include an amount in income in respect of an amount deemed to be owed to it pursuant to subsection 17(2) (the "second amount"). In this scenario, each income inclusion relates to a separate amount owing wherein the first amount arose in the circumstances described in subsection 17(1) and the second amount arose in the circumstances described in subsection 17(2).

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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