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.
This is in reply to your letter of August 16, 1989, wherein you requested an advance income tax ruling.
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We cannot provide this ruling as requested since the ruling request was not submitted in accordance with the guidelines described in Information Circular 70-6R.
As discussed in our telephone conversation of September 6, 1989, we offer the following comments regarding the application of subsection 74.5(2) of the Act.
Subsection 74.5(2) of the Act provides an exemption from the attribution rules contained in subsection 74.1(1) and section 74.2 for loans of property that bear a commercial rate of interest. A loan is considered to bear a commercial rate of interest for purposes of this subsection if interest is charged on the loan at a rate not less than either the prescribed rate of Interest or the rate that would have been agreed upon between arm's length parties under similar circumstances at the time the indebtedness was incurred. In such a case, the exemption from attribution is available on a year-to-year basis. There is no attribution in respect of income for a year only if the interest that is payable on the loan in respect of that year and each preceding year has in fact been paid not later than 30 days after the end of each such year. The prescribed rate for the period July 1, 1989 to September 30, 1989 in 131. A photo-copy of the News Release announcing the rate of interest is attached. The prescribed rate for the period commencing October 1, 1989, has not yet been announced.
In our view if an interest rate of 151 is charged on a loan and the prescribed rate in effect at the time the loan was made is 131, the attribution rules contained in subsection 74.1(1) and section 74.2 of the Act would not apply by virtue of subsection 74.5(2) of the Act.
Your fee submitted with the ruling request will be returned to you under separate cover.
We trust our comments will be of assistance.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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