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:
Does subsection 17(1) apply to impute interest on a loan made to a non-resident person where the loan is outstanding after one year and the non-resident has become a resident of Canada.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
The determination of whether subsection 17(1) applies is an annual and continuous test. Therefore in the situation where a non-resident subsidiary becomes a resident of Canada, subsection 17(1) will not apply to any amount outstanding after that time.
943224
XXXXXXXXXX A. Seidel
Attention:XXXXXXXXXX
February 16, 1995
Dear Sirs:
This is in reply to your letter dated December 5, 1994 concerning the application of subsection 17(1) of the Income Tax Act (the "Act").
Subsection 17(1) of the Act provides that where a corporation resident in Canada has made a loan to a non-resident person at less than a reasonable rate of interest and the loan remains outstanding after one year, the corporation shall be deemed to have received interest on the loan at the prescribed rate of interest specified in section 4301 of the Income Tax Regulations on the last day of each taxation year in which the loan was outstanding. Subsections 17(2) and (3) of the Act provide exceptions to the application of subsection 17(1) of the Act. Accordingly, where a Canadian parent makes an interest-free loan to its non-resident subsidiary, and neither of subsections 17(2) or (3) of the Act are applicable, subsection 17(1) of the Act will apply if the loan has been outstanding for one year or longer.
It is the Department's view that subsection 17(1) of the Act contemplates an annual and continuous test for purposes of determining whether the lender is deemed to have received interest on money lent to a non-resident person. Therefore, in the situation where the non-resident subsidiary subsequently becomes a resident of Canada, it is our view that subsection 17(1) of the Act would not apply to any amount still outstanding after that time.
These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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