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.
19(1)
May 18, 1990
Dear Sirs:
This is in reply to your letter of March 5, 1990 wherein you requested the Department's administrative position with respect to various types of financing arrangements with non-residents which you have referred to as "back to back" loans.
In particular your concern is whether the Department would seek to apply subsection 245(2) of the Income Tax Act ("Act") to any of the arrangements you have described. Subsection 245(2) may have application in any situation where a transaction or series of transactions would result in a "tax benefit", within the meaning of that expression in subsection 245(1) of the Act, unless the transaction or transactions may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit. In addition subsection 245(2) will only apply if it may reasonably be considered that the transaction would result in a misuse of the provisions of the Act or an abuse of the provisions of the Act read as whole.
It appears that in each of the situations that you described in your letter the transactions are structured to avoid withholding exigible under section 212 of the Act. While you have provided comments which are relevant to the determination of "misuse" or "abuse" we do not feel such a determination can be made without full consideration of the specific circumstances. In our view an opinion that subsection 245(2) would or would not apply to the general situations you have set forth may be misleading and therefore inappropriate.
Should you have a specific proposed transaction we would be pleased to address your concerns by way of an advance income tax ruling.
We hope our comments are of assistance to you.
Yours truly,
F. Lee WorkmanChiefFinancial Institution SectionFinancial Industries DivisionRulings Directorate
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