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: Update on cash pooling.
Position: See below.
IFA 2025 Annual Conference - CRA Roundtable
Question 3: Cash Pooling
In a multinational notional cash pooling arrangement, there may be a number of participants in the pool and each participant’s deposit or overdraft balance in the pool may fluctuate frequently. If a Canadian resident corporation (taxpayer) is a participant in the pool, the conditions in subsection 15(2.16) may be met in respect of the taxpayer’s deposit in the pool. Where the conditions of subsection 15(2.16) are met, subsection 15(2.17) deems the taxpayer to have made, for purposes of sections 15 and 80.4, one or more loans to one or more non-resident participants. In light of the frequent fluctuations in the balances of all pool participants, the application of subsection 15(2.17) may result in numerous deemed loans that may be subject to subsection 15(2).
The CRA has previously provided some positions on cash pooling. Are there more recent developments in the area that the CRA can share?
CRA Response
The CRA noted the following in document 2015-0595621C6:
“Cash-pooling arrangements can take various forms and structures. Every arrangement creates its own specific legal relationships. The tax consequences of such an arrangement can only be established when all the facts, elements and documents relevant to a case are known.”
Where a taxpayer makes a loan to a non-resident of Canada that is a shareholder of the taxpayer (or is connected with the shareholder), subsection 15(2) combined with paragraph 214(3)(a) of the Act generally provides that the taxpayer is deemed to have paid a dividend to the non-resident, equal to the amount of the loan or indebtedness. The deemed dividend is subject to withholding tax under subsection 212(2) at 25%, possibly reduced under a treaty.
There are a few exceptions to this general rule, two of which (subsections 15(2.6) and (2.11)) are discussed below.
Subsection 15(2.6) provides that subsection 15(2) does not apply to a loan or indebtedness that is repaid within one year after the end of the taxation year of the taxpayer in which the loan or indebtedness arose, where it is established by subsequent events or otherwise, that the repayment is not part of a “series of loans or other transactions and repayments”.
As was pointed out in CRA document 2017-0682631I7, the automatic cash sweeps that occur as part of a physical cash pooling arrangement would likely be considered to form part of a “series of loans or other transactions and repayments”.
The 2016 introduction of the back-to-back shareholder loan rules in subsections 15(2.16) to (2.192) of the Act have raised questions regarding the application of these rules, and consequently subsection 15(2), to notional cash pooling arrangements involving a taxpayer and its foreign parent and/or non-resident corporations connected with the foreign parent for purposes of subsection 15(2). Where the conditions of subsection 15(2.16) are met, subsection 15(2.17) (footnote 1) deems all or a portion of the taxpayer’s deposit in the notional cash pool to be indebtedness owing to that taxpayer by one or more non-resident participants. Subject to subsection 15(2.6), non-resident withholding tax may apply to such deemed loan. Subsection 15(2.18) sets out the conditions required for there to be deemed repayment of a deemed loan under subsection 15(2.19).
As noted in the explanatory notes to subsection 15(2.19), “As in the case of any repayment of a loan to which subsection 15(2) has applied, a deemed repayment under subsection 15(2.19) is not sufficient to qualify for relief under subsection 15(2.6), paragraph 20(1)(j) or subsection 227(6.1); these provisions set out additional requirements – in particular, that it must be established that the deemed repayment was not part of a series of loans or other transactions and repayments.”
The anticipated frequent and ongoing movements in the account balances of participants to a notional cash pooling arrangement would likely be considered to form part of a “series of loans or other transactions and repayments”.
The following hypothetical example is intended to illustrate the application of the rules in subsections 15(2.16) to (2.19) only. The example provides a snapshot of transactions undertaken over a one month period under a notional cash pooling arrangement that involves only a Canadian resident corporation (“the Taxpayer”), two non-residents (“Forco1” and “Forco2”) and an arm's length bank (“the Bank”). The terms of the notional cash pooling agreement require the overall balance (aggregate deposits (footnote 2) and overdrafts) to be at least zero.
1. On October 1st, Forco1’s balance was a credit of $10M; Forco2’s account balance was a debit of $5M; and the Taxpayer’s account balance was $0. The overall balance was a credit of $5M.
2. On October 5th, the Taxpayer made a deposit of $5M into its account.
3. On October 15th, as a result of a withdrawal, Forco2 increased its debit balance by $10M, bringing the overall balance to $0.
4. On October 20th Forco1 made a deposit of $5M to its account.
5. On October 25th the Taxpayer withdrew $5M from its account, bringing the overall balance to $0.
6. On October 26th the Taxpayer made a deposit of $10M to its account.
7. On October 27th Forco1 withdrew $5M from its account.
8. On October 28th, the Taxpayer withdrew $5M from its account, bringing its account balance to $5M and thereafter Forco2 made a deposit of $5M into its account.
9. On October 29th Forco2 made a deposit of $7M into its account.
The cash pool balances can be summarized as follows:
The tax consequences under subsections 15(2.16) to (2.19) are, subject to subsection 15(2.6), as follows:
1. On October 1st, 2024, there are no tax consequences as the Taxpayer is not a participant of the notional cash pool.
2. On October 5th, 2024, the requirements under subsection 15(2.16) would not be met as all of the overdraft (debit) account balance of Forco2 was permitted to remain outstanding because of Forco1’s deposit.
3. On October 15th, 2024, the requirements under subsection 15(2.16) would be met because it is reasonable to conclude that the withdrawal of $10M by Forco2 (resulting in an overdraft account balance of $15M) was permitted in part because of the Taxpayer’s $5M credit account balance. As such, subsection 15(2.17) would deem the Taxpayer to have made a loan to Forco2 of $5M (footnote 3) .
4. On October 20th, 2024 there are no tax consequences.
5. On October 25th, 2024, the requirements under subsection 15(2.18) would be met because the amount owing by the Bank to the Taxpayer is repaid as a result of the withdrawal. The deemed repayment under subsection 15(2.19) in respect of the subsection 15(2.17) deemed loan to Forco2 would be $5M (footnote 4) . Therefore, the October 15, 2024 deemed loan to Forco2 is repaid in full.
6. On October 26th, 2024, the requirements under subsection 15(2.16) would not be met as all of the overdraft (debit) account balance of Forco 2 was permitted to remain outstanding because of the deposit of Forco1.
7. On October 27th, 2024, the requirements under subsection 15(2.16) would be met because it is reasonable to conclude that Forco2’s overdraft of $15M was permitted to remain outstanding in part because of the Taxpayer’s $10M account balance. As such, subsection 15(2.17) would deem the Taxpayer to have made a loan to Forco2 on October 27, 2024 of $10M (footnote 5) .
8. On October 28th, 2024, the requirements under subsection 15(2.18) for a deemed repayment are met twice, first upon the Taxpayer’s withdrawal and thereafter upon Forco2’s deposit. With respect to the Taxpayer’s withdrawal, the deemed repayment under subsection 15(2.19) in respect of the October 27, 2024 subsection 15(2.17) deemed loan to Forco2 would be $5M (footnote 6) . With respect to Forco2’s deposit into its account, the deemed repayment under subsection 15(2.19) in respect of the October 27, 2024 subsection 15(2.17) deemed loan to Forco2 would be nil (footnote 7) . This results in a subsection 15(2.17) deemed loan to Forco2 balance of $5M.
9. On October 29th, 2024, the requirements under subsection 15(2.18) for a deemed repayment are met as a result of Forco2’s deposit. The deemed repayment under subsection 15(2.19) in respect of the October 27, 2024 subsection 15(2.17) deemed loan to Forco2 would be $2M (footnote 8) , leaving an outstanding 15(2.17) deemed loan balance to Forco2 of $3M.
Another exception to the application of subsection 15(2) is where the loan or indebtedness is a pertinent loan or indebtedness (“PLOI”) as defined in subsection 15(2.11). The PLOI exception requires the taxpayer and its non-resident parent corporation to file a joint election. A deemed interest income inclusion is required in regards to the taxpayer. Further to the above example, we note that a typical notional cash pool would involve a larger number of participants and a higher volume of fluctuations in the accounts, possibly resulting in many deemed loans to many non-resident participants in multiple jurisdictions. The CRA has developed a simplified PLOI election in respect of deemed loans that arise under subsection 15(2.17). The CRA’s Compliance Programs Branch will provide additional details on the simplified PLOI election through the CRA’s website.
Komal Patel
2025-105551
May 28, 2025
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Subsection 15(2.17) also applies for purposes of section 80.4. Any amount determined under subsection 80.4(2) is, pursuant to subsections 15(9), 15(1) and 214(3), deemed to be a dividend paid to the relevant non-resident, and thus subject to a 25% withholding tax unless the rate is reduced by a relevant tax treaty.
2 A credit balance refers to a deposit and a debit balance refers to an overdraft.
3 A x B/C– (D – E), where A = $5M, B/C = 1, D = $0M; E = 0M.
4 A – B – C, where A = $5M, B = nil, C = nil
5 A x B/C – (D – E): where A = 10M, B/C = 1, D = $5M, E = $5M
6 A – B – C, where A = $10M, B = nil, C = $5M
7 A – B – C, where A = $10M, B = $5M, C = $5M
8 A – B – C, where A = $10M, B = $5M, C = $3M
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