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.
XXX
Re: Paragraph 95(1)(b) of the Income Tax Act and subparagraphs 5907(1)(f)(ii) and 5907(1)(g) (ii) of the Regulations thereto
We apologize for the delay in replying to your letter of April 15, 1985 in which you requested a technical interpretation concerning the application of the above-mentioned provisions of the Income Tax Act ("the Act") to a situation which may be described as follows:
A foreign affiliate ("FA1") borrows funds to finance the purchase of shares of another foreign affiliate ("FA2"). FA1 receives dividends upon these shares from FA2 and also incurs interest expenses upon the loan taken our to acquire these shares of FA2.
In your view, the above dividends received by FA1 would be excluded from the calculation of its foreign accrual property income ("FAPI") pursuant to clause 95(1)(b)(i)(B) of the Act while the above interest expense incurred by FA1 would be included in the negative components of FAPI pursuant to subparagraph 95(1)(b)(iii). It follows, therefore that this interest expense would affect that calculation of "net earnings" and "net loss" in respect of FAPI pursuant to Regulations 5907(1)(f)(ii) and 5907(1)(g)(-ii) respectively.
In our opinion, your interpretation of the application of the above-mentioned provisions of the Act to the situation outlined is correct.
We hope this information is of assistance to you.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© His Majesty the King in Right of Canada, 1985
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté le Roi du Chef du Canada, 1985
Email this Content