CRA extends Norco doctrine

A character preservation rule (s. 129(6)) provides that amounts such as rents and interest which are deducted in computing the Canadian active business income of a Canadian-controlled private corporation are deemed to be Canadian active business income of an asociated corporate recipient for purposes of various rules (in ss. 125 and 129) applicable to CCPCs.  In Norco Development, McNair J found (somewhat contrary to the wording of ss. 96(1)(c) and(f)) that interest paid by a partnership to an associated corporation was within the character preservation rule.

CRA considers that the rule also applies in the reverse situation of payment of rent by a CCPC to a partnership to the extent of the percentage member interest therein of an associated CCPC.

Neal Armstrong.  Summary of 10 May 2013 T.I. 2012-0442791E5 F under s. 129(6).