24 July 1990 Ruling 59493 F - Form T106 Filing Requirement

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.

Attention: 19(1)

July 24, 1990

Dear Madame:

Re:  Section 233.1

This is in reply to your letter dated January 12, 1990 whereby you requested our opinion as to certain matters concerning the filing requirements under section 233.1 in respect of the following hypothetical fact situations.

a.     In 1990, Canco (a corporation resident in Canada or a corporation carrying on business in Canada) subscribes for all the common shares of a corporation resident in the United States ("USCo") for an aggregate subscription price of (Can) $100.

Canco is required to file form T106 (the "Form") in respect of USCo for the 1990 taxation year of Canco as Canco had a transaction in such taxation year with USCo, a non-resident with whom it was not dealing at arm's length at any time in the year.  Canco will not be required by subsection 233.1 to file the financial statements of USCo as USCo is resident in a country with which Canada has a tax treaty.

b.     The same fact situation in (a).  In 1991, Canco subscribes for additional shares in USCo.

Canco is required to file the Form in respect of USCo for the 1991 taxation year of Canco for the reasons set forth in (a) above.

c.     The same fact situation in (a). In 1991, there are no additional transactions between Canco and USCo.

The filing of a Form is not required in respect of a taxation year in which there were no transactions.

d.     In 1990, Canco subscribes for fifty percent (50%) of the common shares of a corporation resident in the United States ("USCo") for an aggregate subscription price of (Can) $100.  The remaining shares of USCo are held by a Canadian corporation that is not related to Canco.

Section 233.1 applies and the Form must be filed in respect of Canco's transactions with each non resident person with whom Canco was not dealing at arm's length at any time in a taxation year of Canco.  If at any time in the year Canco owned more than fifty percent (50%) of the issued shares of USCo it would at such time have been related to USCo and be deemed pursuant to paragraph 251(1)(a) of the Income Tax Act not to deal with USCo at arm's length.  If Canco and USCo are not at any time in the taxation year related or deemed to be related to each other, paragraph 251(1)(b) of the Income Tax Act provides that it is a question of fact whether Canco and USCo are at any time in such taxation year not dealing with each other at arm's length.

e.     A corporation resident in the United States ("USCo") carries on business in Canada for purposes of the Act.  USCo enters into a number of transactions with related persons who are resident in Canada.

USCo would not be required to file the Form in respect of the persons who are resident in Canada.  However, each of the persons that were corporations that at any time in their respective taxation years were resident in Canada or carried on business in Canada and had a transaction with USCo must file the Form in respect of USCo.

f.     USCo carries on business in Canada for purposes of the Act.  USCo enters into a number of transactions with a wholly-owned subsidiary which is resident in the United Kingdom ("UKCo").

USCo would be required to file the Form in respect of transactions between its Canadian branch and UKCo for the taxation year of USCo in which such transactions occurred. Transactions between USCo and UKCo that do not relate to the Canadian branch need not be reported in the Form filed by USCo.  USCo will not be required by subsection 233.1 to file the financial statements of UKCo as UKCo is resident in a country with which Canada has a tax treaty.

g.     In 1990, Canco advances funds on an interest-free basis to its wholly-owned subsidiary, USCo.  The terms of the loan provide that no principal is payable for a 5 year period.

Canco would be required to file the Form in respect of USCo for the 1990 taxation year of Canco as Canco had a transaction in such taxation year with USCo, a non-resident person with whom Canco was not dealing at arm's length at any time in the year.

h.     The same fact situation in (g).  No payments are made in the 1991 taxation year.

Canco is not required to file the Form in respect of USCo for a taxation year in which Canco had no transactions with USCo.  It is, of course, a question of fact as to whether a transaction occurred in any taxation year.

i.     In 1990, Canco subscribes for all of the common shares of a corporation resident in the Netherlands Antilles ("NACo") for an aggregate subscription price of $100.

Canco is required to file the Form in respect of NACo for the 1990 taxation year of Canco as Canco had a transaction in such taxation year with NACo, a non-resident with whom it was not dealing at arm's length at any time in the year.  The Form must be filed by Canco within 6 months from the end of the 1990 taxation year of Canco.  Canco will be required to file with the Form the financial statements of NACo (in English or French where available) for the corresponding fiscal period of NACo. You are correct that Canada does not have a tax treaty that is applicable to residents of the Netherlands Antilles.

We enclose herewith a copy of Form T106 including the Instructions in connection therewith that are printed on the reverse side of the Form which may be of assistance to you should you have any further questions in connection with this matter.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch