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: Is a corporation's non interest-bearing debt included in its "outstanding debts to specified non-residents" for the year?
Position: No. However, it is a question of fact whether any particular debt is one on which an amount in respect of interest is paid or payable for the year.
Reasons: Paragraph 18(5)(a)(ii) of the definition "outstanding debts to specified non-residents".
XXXXXXXXXX 2000-006272
R. Maley
June 6, 2001
Dear XXXXXXXXXX:
Re: Request for Interpretation, subsections 18(4) and 18(5) of the Income Tax Act
This is in reply to your letter of December 21, 2000 requesting our views as to whether a non interest-bearing debt would be included in a taxpayer's "outstanding debts to specified non-residents" as defined in subsection 18(5) of the Act.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Pursuant to subparagraph 18(5)(a)(ii) of the definition, a corporation's "outstanding debts to specified non-residents" includes only amounts "on which any amount in respect of interest paid or payable by the corporation is or would be, but for subsection (4), deductible in computing the corporation's income for the year". Whether or not a particular debt is one in which there may be "amounts in respect of interest" for the year depends upon its terms. Debt that does not bear interest is not included in computing a corporation's "outstanding debts to specified non-residents". As noted in your letter, this view is reflected in paragraph 5 of IT-59R3, "Interest on debts owing to specified non-residents (thin capitalization)".
We would note also that, where a particular debt does bear interest, the deductibility of that interest is subject not only to the potential application of subsection 18(4) but also to the general requirement in paragraph 20(1)(c) that the amount of interest expense be reasonable in the circumstances.
While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we trust that they assist.
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
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