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.
REVENUE CANADA, TAXATION MEMORANDUM
TO International Audit Division
FROM Specialty Rulings Directorate
S. Leung
957-2116
J.A. Calderwood Director
SUBJECT: Application of Subsection 69(3)
to guarantee agreements entered into
prior to May 10, 1985
This is in reply to your memorandum of March 15, 1989 wherein you requested our opinion concerning the transitional provisions relating to subsection 69(3).
Subsection 69(3) was amended in 1985 applicable to transactions and events occurring after May 9, 1985. In your opinion, where a Canadian taxpayer is providing an ongoing service for no compensation, such as guaranteeing a foreign subsidiary's loan, subsection 69(3), as amended, would apply to impute a reasonable loan guarantee fee, notwithstanding that the particular agreement was signed before May 10, 1985.
It is our view that, for purposes of this transitional provision, a transaction or event occurs when the guarantor enters into an arrangement to guarantee the loan of a non-resident person by signing a guarantee agreement with the lender of the loan. If the agreement was entered into prior to May 10, 1985 and provided that there is neither a change to any of the terms of the agreement nor a renewal of the original agreement, subsection 69(3) would not apply notwithstanding that part or all of the guarantee period falls after May 9, 1985. However, a transaction or event would generally occur at the time of any renewal of the guarantee agreement or at the time any term of the agreement, such as the guarantee amount, is changed. Therefore, in order to determine whether subsection 69(3) would or would not apply for those guarantee agreements entered into prior to May 10, 1985 for no consideration, it is necessary to review and examine the terms and conditions of the particular guarantee agreements.
Original signed by
Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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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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