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.
Principal Issues: Whether a repayment of a loan in the circumstances described would be considered to be part of a series of loans or other transactions and repayments.
Position: General comments only.
Reasons: Question of fact.
XXXXXXXXXX 2008-026727
Michael Cooke, CA
April 16, 2009
Dear XXXXXXXXXX :
Re: Subsection 15(2.6)
This is in reply to your letter dated January 19, 2008, wherein you requested our views as to whether subsection 15(2.6) of the Income Tax Act (the "Act") would apply in the circumstances described in your letter.
Briefly, in your letter you describe a situation wherein the shares of a corporation resident in Canada ("Canco") are owned by a non-resident corporation ("NRCo"). Another non-resident corporation ("Finco") is "connected" to NRCo within the meaning of subsection 15(2.1) of the Act. Neither NRco nor Finco is a foreign affiliate of Canco.
As part of a cash pooling arrangement, Canco loans its excess cash (on a daily basis) to Finco and Finco repays Canco whenever Canco requires funds. While you indicate that the amounts owing to Canco will be "repaid" within the time period specified in subsection 15(2.6) of the Act, your letter describes several repayment options in respect of which the "repaid" funds could ultimately end up back in Finco.
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Circular and other publications referred to in this letter are available on our website at http:///www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of our website.
Subsection 15(2) of the Act provides, in part, as follows:
Where a person (other than a corporation resident in Canada) ... is
...
(b) connected with a shareholder of a particular corporation, ...
...
and the person ... has in a taxation year ...received a loan from or has become indebted to the particular corporation, ... the amount of the loan or indebtedness is included in computing the income for the year of the person ...
If the person to whom income is attributed under subsection 15(2) of the Act is not resident in Canada, the attributed amount is deemed by paragraph 214(3)(a) of the Act to have been paid to the person as a dividend from a corporation resident in Canada. Consequently, non-resident withholding tax under subsection 212(2) of the Act would apply.
Section 15(2.6) of the Act provides an exception to the application of subsection 15(2) of the Act. Pursuant to subsection 15(2.6) of the Act, subsection 15(2) of the Act will not apply where the loan or indebtedness is repaid within one year from the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose provided the repayment is not part of a series of loans or other transactions and repayments.
Our views on whether a repayment of a loan is part of a series of loans or other transactions and repayments are set out in Interpretation Bulletin IT-119R4, Debts of Shareholders and Certain Persons Connected With Shareholders. In general terms, it is a question of fact whether or not a repayment of a loan is part of a series of loans or other transactions and repayments. More specifically, we indicate at paragraph 28 of IT-119R4 that a repayment of a temporary nature may be evidence of a series of loans and repayments.
Whether or not subsection 15(2.6) of the Act would apply to the various transactions described in your letter remains a question of fact that can only be determined after a review of all of the relevant circumstances.
We trust that these comments will be of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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