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: Which date is meant by the phrase "that day" used in the coming into-force rule in paragraph 88(2)(a) of Bill C-4 in the application of subsection 247(7.1)?
Position: The relevant coming into-force date referenced by the phrase "that day" is the date of Royal Assent, that is, December 12, 2013.
Reasons: The wording of the provision. Also, the purpose of this election is to give effect to the legislation prior to the coming into-force date.
March 31, 2014
Subject: Subsection 247(7.1) coming-into-force rule
We are writing in response to your email of December 15, 2013, requesting our interpretation as to which date is meant by the phrase "that day" used in the coming into-force rule in paragraph 88(2)(a) of Bill C-4 in the application of new subsection 247(7.1) of the Income Tax Act (the "Act").
In your enquiry, you state that the phrase "that day" could refer to one of four dates: the effective date of subsection 247(7.1) (February 24, 1998), the announcement date of proposed subsection 247(7.1) (January 24, 2005), the taxpayer's filing-due date, or the date subsection 247(7.1) received Royal Assent (December 12, 2013).
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Subsection 247(7.1) of the Act provides for an exception for the fees paid to a Canadian resident corporation for loan guarantees provided by it in respect of a controlled foreign affiliate. In general terms, subsection 247(7.1) provides that subsection 247(2) of the Act will not apply to adjust the amount of loan guarantee fees owing to a Canadian resident corporation by its controlled foreign affiliate if the underlying loan amount owing is an amount described in paragraphs 17(8)(a) or (b) of the Act. Generally, an amount owing falls under paragraphs 17(8)(a) or (b) if it arose as a loan, or advance of money, that was used by the affiliate to earn active business income or if it arose in the course of an active business carried on by the affiliate. Subsection 247(2) reflects the arm's length principle in the transfer pricing rules. Where subsection 247(2) applies, any transaction amounts between non-arm's length parties shall be adjusted to reflect the quantum or nature of the amounts that would have been agreed to between parties dealing at arm's length.
Subsection 247(7.1) of the Act was added by Bill C-4, which received Royal Assent on December 12, 2013 (footnote 1). This subsection (effective for the 1997 and subsequent taxation years) applies prospectively, subject to an election regarding its application to statute-barred years. Subsection 88(2) of Bill C-4 provides instruction on how subsection 247(7.1) of the Act is to be applied as follows:
"Subsection (1) applies to taxation years that begin after 1997 and in applying subsection 247(7.1) of the Act, as enacted by subsection (1), to taxation years that begin before February 24, 1998, section 17 of the Act is to be read as it read on January 24, 2005, except that if a taxpayer elects under this subsection in writing and files the election with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxation year that includes the day on which this Act receives royal assent,
(a) notwithstanding the time limitations in subsection 152(4) of the Act, the Minister of National Revenue may make such assessments, reassessments and determinations under Part I of the Act as are necessary to give effect to this subsection for a taxation year that ends before that day; and
(b) if the taxpayer so indicates in the election, subsection (1) does not apply to taxation years of the taxpayer that begin before December 22, 2012."
The purpose of this election is to give effect to the legislation prior to the coming-into-force date. The election is intended to provide a taxpayer the benefit of an exception to the transfer price adjustment required by subsection 247(2) of the Act to a statute-barred year that it would have been entitled to had the legislation been enacted as of its effective date. As such, the phrase "that day" in paragraph 88(2)(a) of the coming into-force rules must be in reference to the date the legislation was enacted.
This interpretation is more clearly supported by the French version of Bill C-4, paragraph 88(2)(a), of which expressly states "
pour donner effet au présent paragraphe pour une année d'imposition se terminant avant la date de sanction de la présente loi", that the Minister may "give effect to this subsection for a taxation year that ends before the date of Royal Assent of this Act." As such, it is our view that the relevant coming-into-force date referenced by the phrase "that day" is the date of Royal Assent, that is, December 12, 2013.
We trust our comments will be of assistance.
Terry Young, CPA, CA
Manager, Administrative Law Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 S.C. 2013, c. 40
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