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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Does a loan previously exempted from the application of 15(2) because of paragraphs 15(2.4)(c), (e) and (f) have to continue to meet these exceptions on an assignment of the loan by the creditor to a third party, even though a novation does not occur as a result of the assignment?
Position:
No.
Reasons: The exceptions in subsection 15(2.4) have to be met at the time of issuance of the loan. Therefore, where there is a subsequent assignment of a loan that met the exceptions at the time of issuance and a novation has not occurred, the loan will continue to be exempt from the application of subsection 15(2).
XXXXXXXXXX 2001-011547
Randy Hewlett, B.Comm.
February 5, 2002
Dear XXXXXXXXXX:
Re: Technical Interpretation Request - Paragraph 15(2.4)(c)
We are writing in response to your letter dated December 18, 2001, wherein you requested our opinion on the above-noted matter.
In your letter, you describe a situation in which an employee, who is also a shareholder, of a company receives a loan from the company to purchase its shares. The loan is exempt from the application of subsection 15(2) of the Income Tax Act (the Act) because it meets the exceptions in paragraphs 15(2.4)(c), (e) and (f). At a time subsequent to the date when this loan arose, the company was "restructured" such that the loan was assigned to a partnership in which the company was the sole general partner. You inquire whether the loan will still meet the exception in paragraph 15(2.4)(c) subsequent to this assignment to the partnership.
In your view, where a loan met the requirements of subsection 15(2.4) of the Act at the time it was made, it should continue to be excluded from the application of subsection 15(2) on a subsequent assignment by the creditor to a third party in situations where a novation does not occur. You feel that the exceptions to the application of subsection 15(2) of the Act need only be met at the time the indebtedness arose.
In general terms, we are in agreement with your view. However, it should be noted that written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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