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:
Status of IT-239R2 following the Byram decision.
Position TAKEN:
CCRA is awaiting the decision in Singleton and may, depending upon the outcome consider revisions to IT-239R2.
Reasons FOR POSITION TAKEN:
The Singleton decision may have bearing on IT-239R2 since the majority of the Federal Court of Appeal appeared to find that it was not necessary to look beyond the direct use of the funds to determine the purpose for which they were used. .
IFA SEMINAR - 2001
ROUND TABLE
QUESTION
In Edwin J. Byram v. the Queen (99 DTC 5117 (FCA(), it was decided that non-interest bearing loans made to a non-resident corporation by a direct (or indirect) shareholder had been acquired by the shareholder for the purpose of gaining or producing income from property for the purposes of subparagraph 40(2)(g)(ii).
Interpretation Bulletin IT-239R2 does not yet reflect the outcome of the Byram decision. Does the CCRA intend to update the IT? Assuming the answer is in the affirmative, will the CCRA's new position be extended to guarantees where the Canadian parent has guaranteed a debt of a wholly owned foreign subsidiary, but has not received a guarantee fee from the subsidiary?
CCRA'S RESPONSE
The CCRA announced at the Canadian Tax Foundation Conference in September 1999 that it intended to revise IT-239R2 to reflect the Byram decision. However, it added that before proceeding it would await the outcome of its leave application to appeal the decision in John R. Singleton v. the Queen (99 DTC 5362 (FCA( to the Supreme Court of Canada. The reason given was that the Singleton decision may have bearing on IT-239R2 since the majority of the Federal Court of Appeal appeared to find that it was not necessary to look beyond the direct use of the funds to determine the purpose for which they were used. Thus, before changing this interpretation bulletin we want to see what the Supreme Court may say regarding the phrase "for the purpose of earning income" and whether it will have an impact on the interpretation of subparagraph 40(2)(g)(ii) taken in Byram.
The Singleton case was heard by the Supreme Court on March 19, 2001. However, the Court reserved judgment in this matter. Accordingly, at this time, the CCRA is awaiting the decision in Singleton and may, depending upon the outcome consider revisions to IT-239R2.
Philip Diguer
957-2746
2001-007904
April 19, 2001
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