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.
MEMO TO FILE
Revenue Canada Roundtable Question 1992 Canadian Tax Foundation
Subject: Exemption From Withholding Tax On Interest Payable To A Non-Resident
Question 6:
A loan owing to a non-resident lender which is subject to subparagraph 2l2(l)(b)(vii) goes into default and the full amount of the loan becomes payable. Instead of demanding repayment of the loan, the non-resident lender agrees with the Canadian borrower that demand for payment will be deferred as long as certain financial conditions are met by the borrower. Will the interest on the debt still be free of withholding tax under subparagraph 212(1)(b)(vii) following the default or will the new arrangements be regarded as a new loan which must pass the subparagraph 212(1)(b)(vii) test again?
Department Response
The withholding tax exemption under subparagraph 212(1)(b)(vii) will still apply to a non-resident lender in a situation where the borrower becomes obligated to pay more than 25% of the principal amount of the obligation due to a default under clause 212(1)(b)(vii)(C) and a portion of the debt remains outstanding.
Where the terms of an obligation, or any agreement relating thereto, are renegotiated or altered, otherwise than as provided for in the terms of the original obligation or agreement, it is a question of fact whether a new obligation has been created. If it is determined that a new obligation has been created, the new obligation would have to meet the conditions of subparagraph 212(1)(b)(vii) at that time.
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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