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.
CTF - 1990 Conference Report
QUESTION I 78
Loan Guarantee from Non-resident for no Consideration
A Canadian corporation ("Canco") borrows funds from an arm's length lender (the "lender"). Canco's non-resident parent corporation (the "parent") guarantees the loan for no consideration. Will Canco or the lender be considered to have received a taxable benefit from the parent? Would Canco or the lender be deemed to have paid a guarantee fee to the parent?
DEPARTMENT'S POSITION
Neither Canco nor the lender would be considered to have received a benefit from the parent. Since the parent did not receive consideration for its guarantee of the loan, the parent will not be deemed by paragraph 214(15)(a) of the Act to have been paid interest on the loan. However, if Canco's borrowing of funds or the giving of a guarantee by the parent can be considered part of a series of transactions, which series, would result in a tax benefit and may reasonably be considered to have been undertaken or arranged primarily to obtain the tax benefit, the transaction may nevertheless be subject to subsection 245(2) of the Act.
Prepared by: O. Laurikainen
October 26, 1990
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