5 December 2023 Roundtable, 2023-0995281C6 - 2023 TEI – Question C7 - Government Assistance

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: Position of the CRA following the Federal Court of Appeal decision in CAE Inc. c. Canada, 2022 CAF 178.

Position: General comments provided.

Reasons: Question of facts.

TEI – CRA Liaison Meeting – December 5, 2023

C. Administrative Matters

Question 7. Government Assistance

In May of 2023, the Supreme Court refused leave to appeal of the CAE Inc. case (2022 CAF 178) (“CAE”), which dealt with a low interest loan received by the taxpayer from Industry Canada. The Tax Court of Canada found that such loans constituted “government assistance” within the meaning of subsection 127(9) of the Act. The decision was confirmed by the Federal Court of Appeal in October 2022.

In CAE, the loan was unconditionally repayable, but the court found that the low implied interest rate (approximately 1.15% below the risk-free rate of return) was low enough to deem the loan to not be an “ordinary commercial arrangement.”

Over the past few years, the federal government has sent clear signals to Canadian businesses of its desire for Canada to innovate, fight climate change by building green infrastructure, and provide ownership and capacity building opportunities to Indigenous communities in Canada. In doing so, the government has introduced various programs under which Canadian businesses can obtain loans at interest rates below that which can be obtained from a commercial lender. In many cases, like with CAE, the loans are unconditionally repayable and differ only from commercially obtained loans in the interest rates charged. Two providers of such loans are the Strategic Innovation Fund (“SIF”) and the Canada Infrastructure Bank (“CIB”). In addition, where a project incorporates meaningful ownership by Indigenous communities, taxpayers may receive grants from, for example, Natural Resources Canada.

Given the increased profile of these programs, taxpayers are uncertain what constitutes government assistance under the Act. Can the CRA comment on what conditions must be present for an unconditionally repayable low-interest loan from a government to be considered “government assistance?” In other words, how different from a “normal” commercially obtained loan must a government loan be?

CRA Response to Question C7

The 2023 Fall Economic Statement of November 21, 2023 proposes to amend the Act to provide that bona fide loans that do not bear interest or that bear interest at below-market rates (referred to as “concessional loans”) with reasonable repayment terms from public authorities will generally not be considered government assistance.

This amendment would come into force on November 21, 2023.

We will be in a position to provide further interpretative guidance in this respect once the legislation is enacted.