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 or not a corporation whose principal business is the making of loans is a "loan corporation" for purposes of section 405 of the Income Tax Regulations.
Position: Yes.
Reasons: The wording of the legislation
March 30, 2001
TORONTO NORTH TSO HEADQUARTERS
Attention: Doug Mitchell
Banking Specialist
2000-006666
"Loan Corporation" and Section 405 of the Income Tax Regulations ("Regulations")
This is in reply to your May 10, 1999 memorandum and the additional information provided in your June 16, 1999 memorandum. Your request had been placed in abeyance as you had asked. You requested on January 22, 2001 that we re-open this file and to consider whether or not a corporation whose principal business is the lending of money is a "loan corporation" for purposes of section 405 of the Regulations even though this corporation is not regulated either federally or provincially as a "loan corporation".
As you are aware, it has been our position in the past that a corporation would be considered a "loan corporation" for purposes of section 405 of the Regulations if it was regulated as a "loan corporation" by either the federal Trust and Loan Companies Act or a provincial Loans and Trust Companies Act. It is our understanding that this position reflected the original intention of the Department of Finance when this measure was first introduced.
There is no specific reference in section 405 of the Regulations requiring that a particular corporation be regulated or registered either federally or provincially as a "loan corporation". A "loan corporation" is not defined in the Income Tax Act nor in the Regulations.
"Loan corporation" is defined in the Loan and Trust Companies Act (Ontario updated to April 30, 2000), to mean "a body corporate incorporated or operated for the purpose of borrowing money from the public by receiving deposits and lending or investing such money..." "Loan corporation" is not defined per se in the Trust and Loan Companies Act (Federal updated to April 30, 2000). An official at the Office of the Superintendent of Financial Institutions advised that they look to subsection 57(1) of this Act which states that the Superintendent of the Financial Institutions "may" authorize a company to carry on the business as a trust company and if a company is not a trust company it would, by default, be a loan company under that Act. The Office of the Superintendent of Financial Institutions also takes into account subsection 47(2) which restricts the use of the word "loan". It states that "No entity incorporated or formed by or under any Act of Parliament other than this Act shall use the word "loan", "loanco" or "prêt" or any word or words of import equivalent to those words in its name."
As you pointed out, the Provinces of Ontario and Quebec have both indicated in their respective interpretation bulletins, dealing with the allocation of business among jurisdictions, that they will consider a corporation as a "loan corporation" if its principal business is the making of loans or the lending of money. The Province of Ontario in its interpretation bulletin also indicates that "Finance and acceptance corporations whose principal activity is discounting commercial paper as opposed to directly money-lending, are not considered to be loan corporations and must use the normal formula, using both gross revenue and salaries and wages."
Black's Law Dictionary (6th Edition) includes a loan company in its definition of "financial institutions". However, it does not specifically define a "loan corporation" or a "loan company" and therefore does not offer much guidance.
Given that section 405 of the Regulations does not restrict its application to corporations which are regulated as "loan corporations" either federally or provincially we are of the opinion that a corporation whose principal business is the lending of money or the making of loans could be considered to be a "loan corporation" for purposes of section 405 of the Regulations.
We trust that the above comments will be of assistance. If you require to discuss further please do not hesitate to contact either Michele Trotier at (613) 957-3494 or F. Lee Workman at (613) 957-3497.
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content