16 March 1992 Income Tax Severed Letter 9205885 - Large Corporation Tax

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: LARGE CORPORATION TAX Section(s): 181, 181.2, 181.2(3)]

XXX 920588 J.P. Dunn (613) 957-2747

Attention: XXX

March 16, 1992

Dear Sirs:

Re: Part I.3 Tax on Large Corporations

We are writing in reply to your correspondence of February 20, 1992 wherein you had requested the views of the department with respect to the inclusion of certain amounts in calculating the taxable capital of a corporation for the purposes of Part I.3 Tax.

More specifically, your query envisioned the situation in which a corporation resident in Canada purchases certain goods from its parent company which is based in Japan. The Japanese parent subsequently factors the receivable from the Canadian subsidiary to a Japanese bank. You have questioned whether the fact that the account receivable has been factored to a bank would result in the conversion of that amount to a loan and thereby be included in the taxable capital of the Canadian subsidiary for the purposes of Part I.3 pursuant to paragraph 181.2(3)(c) of the Income Tax Act (the “Act”).

The department considers that trade accounts payable do not constitute a loan or advance to the corporation for the purposes of paragraph 181.2(3)(c) of the Act. Trade accounts payable are, however, considered to be “other indebtedness of the corporation” which would be included in the determination of taxable pursuant to paragraph 181.2(3)(f) of the Act only to the extent that they have been outstanding in excess of 385 days.

With respect to whether the factored receivable becomes a loan for the purposes of Part I.3 Tax, it is our view that the transaction entered into between the parent company and the Japanese bank would not affect the characterization of the original transaction between the parent company and the Canadian subsidiary. This assumes that the Canadian subsidiary is not a party to the arrangement with the Japanese bank such that the amount would be considered as a loan or advance to the Canadian company. Similarly, it assumes that Japanese legal principles would not consider the transaction to be a loan or advance to the Canadian company.

You had additionally requested our views as to whether the factored receivable in this case would be considered a banker's acceptance. We are unable to offer a response to this question as it is our understanding that “acceptance” is a term defined by statute and, consequently, the determination of whether a particular document constitutes an “acceptance” would necessarily require reference to the statute and principles of common law applicable thereto.

While we trust that our comments are of assistance to you, we would advise that they do not constitute an advance income tax ruling and are, therefore, not binding upon the department with respect to any particular situation.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch