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: How does CRA establish that the amount owing is used for one of the eligible purposes described in paragraph 17(8)(a)?
Position: With reference to the approach in IT-533.
Reasons: Both subparagraph 20(1)(c)(i) and paragraph 17(8)(a) require a determination of the use of money derived by incurring indebtedness and should generally be interpreted in a similar manner.
2009-TEI-CRA Roundtable
Question 2 - Subsection 17(8)
Subsection 17(8) of the Income Tax Act, Canada (hereafter the Act) provides that subsection 17(1) does not apply to an amount owing to the taxpayer by a controlled foreign affiliate (CFA) to the extent that it is established that the amount owing is used by the CFA for certain eligible purposes. For audit purposes, how does CRA establish "the extent... that the amount owing" is used for one of the eligible purposes described in paragraph 17(8)(a)? TEI recommends that CRA employ the approach described in paragraph 12, et seq. of IT-533 (Interest Deductibility and Related Issues (October 31, 2003)) in respect of the "use of borrowed money".
CRA Response
The CRA agrees that the approach described in paragraph 12, et seq. of IT-533 (Interest Deductibility and Related Issues (October 31, 2003)) in respect of the "use of borrowed money" should generally be followed for the purpose determining the use of funds for purposes of the test in paragraph 17(8)(a).
Shelley Lewis
November 30, 2009
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