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: Whether the application of section 218 would override subsections 18(4) and 18(5) of the Income Tax Act
Position: No
Reasons: Mainly because of the notwithstanding clause in subsections 18(4) and
18(5)
XXXXXXXXXX 1999-000958
S. Leung
Attention: XXXXXXXXXX
June 1, 2000
Dear Sirs:
Re: Interaction of Sections 18 and 218 of the Income Tax Act (the "Act")
We are writing in reply to your letter wherein you requested our opinion on the interaction of section 218 and subsections 18(4) and 18(5) of the Act in a particular situation outlined in your letter.
The situation outlined in your letter appears to relate to an actual situation involving identifiable taxpayers. As such, if the request is in respect of completed transactions it should be referred to the applicable Tax Services Office. If it is in respect of proposed transactions it should be the subject of an advance income tax ruling request. However, we can offer the following general comments.
Although the phrase "For the purposes of this Act" is found in the pre-amble of subsection 218(1) of the Act, it is our view that subsection 218(1) does not override the provisions of subsections 18(4) and 18(5) of the Act, especially when both of the latter subsections start with the phrase "Notwithstanding any other provision of this Act". Note that following the notwithstanding clause in subsection 18(5) of the Act, the words in the parenthesis which provide an exception from that subsection only identify subsection 18(5.1) of the Act and do not specify subsection 218(1) of the Act. Therefore, there is nothing in the Act that indicates that subsections 18(4) and 18(5) of the Act would not apply if the provisions of section 218 of the Act apply.
In addition, we do not find the conduit concept advocated in various court cases noted in your letter (e.g., Gilbert Lemoine v. Her Majesty the Queen (96 DTC 1655) and Norman Kenneth Ans v. Minister of National Revenue (77 DTC 396)) supports the argument that section 218 is not really necessary in a case where the non-resident corporation's assets are used as security for the loan. However, it would appear that that concept could apply in the situation you described so that the loan would be considered to have been made to the sister company of the non-resident corporation rather than to a subsidiary wholly-owned corporation of the non-resident corporation with the result that subsection 218(1) of the Act would not apply.
In summary, because of the notwithstanding clause in subsections 18(4) and 18(5) of the Act, it is our view that those subsections would apply even if section 218 of the Act applied.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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