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.
Principal Issues: - will we allow capital losses on non-interest bearing loans to foreign corporations?
Position TAKEN: - Our position remains as expressed in IT-239R2 paragraph 6.
Reasons FOR POSITION TAKEN: - Even though decisions rendered by courts against this position it will remain until reviewed by the Department.
DRAFT
Canadian Petroleum Tax Society
1994 Round Table
June 2, 1994
Question #5 - Capital Loss on Non-Interest Bearing Loans to Foreign Corporations
The court decisions in Business Art Inc. (86 DTC 1842), Floyd R. Glass (92 DTC 1759) and National Development Ltd. (94 DTC 1061) have held that capital losses arising from non-interest bearing loans or loan guarantees made for the benefit of foreign corporations are not denied by the "stop loss" rule under subparagraph 40(2)(g)(ii). These decisions do not appear to have been appealed by the Department; however, it appears that the Department continues to apply the position outlined in paragraph 6 of Interpretation Bulletin IT-239R2 to disallow losses on loans made to foreign corporations.
Why does the Department not follow the jurisprudence with regard to the recognition of capital losses on non-interest bearing loans and loan guarantees made to foreign corporations?
Department's Position
The Department has not appealed the decisions rendered by the court in each of the above cases and has accepted the decisions only in relation to the facts of each particular case. The Department's position regarding the deductibility of capital losses resulting from a loan bearing interest at less than a reasonable rate remains as stated in IT-239R2. Although the Department has no present intention of extending its current administrative position set out in paragraph 6 of IT-239R2, it will review its position in light of the above decisions.
Author:M. Sarazin
File:941163
Date:May 12, 1994
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