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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Securities Lending Arrangements
We are writing in response to your letter of June 29, 1993 in which you requested our opinion as to whether certain payments made pursuant to security lending arrangements and repurchase agreements by a Canadian borrower to a non-resident lender would be subject to withholding tax.
We agree that Section 260 of the Income Tax Act Canada (the "Act") would not apply to transactions between parties that are not at arm's length. Whether participants are not at arm's length is a question of fact. In addition, if the securities being transferred or loaned are not qualified securities as defined in subsection 260(1) of the Act, the provisions of section 260 of the Act will not apply to the transactions.
We would agree that in the normal course, a "lending fee" involving non-arm's length participants would not be captured by the deeming provisions of paragraph 260(8)(b) of the Act. As a result we do not feel that these amounts could be properly classified as interest. Instead, the lending fee would either be subject to tax pursuant to subparagraph 212(1)(d)(i) of the Act for the use of property in Canada or will be considered business profits in accordance with the provisions of Article V and VII of the Canada-United States Tax Convention (1980).
Generally, we would agree that the compensation payments made to the non-resident (whether in respect of dividends or interest), that are not subject to subsection 260(5) of the Act, would be ordinary income to the non-resident transferor.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993
Email this Content