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:
Enquiry seeking confirmation that, where, owing to a non-arm’s length relationship between the relevant parties, a transfer of securities from one person (the “securities lender”) to another person (the “securities borrower”) that would otherwise qualify for the special rules regarding securities lending arrangements set out in section 260 of the Act would not apply, any compensatory payments or lending fees paid by a Canadian resident to a non resident corporation would not be subject to any Part XIII withholding tax.
Position TAKEN:
Question of fact. General reply given with respect to securities lending arrangements that fail to qualify for the special rules in section 260.
Reasons FOR POSITION TAKEN:
Interpretation of the Law and position adopted is consistent with previous pronouncements in connection with this matter (March 25, 1998 - file # 5-972840, April 24, 1995 - file # 5-942771, August 5, 1993 file # 5-931919 , November 14 1989 file # 74376A).
XXXXXXXXXX 5-980813
P. Diguer
Attention: XXXXXXXXXX
June 24, 1998
Dear Sir/Madam
Re: Non-arm’s length securities transactions
This is in reply to your letter dated March 30, 1998 in which you requested confirmation on the non-application of subsection 212(1) of the Income Tax Act (Canada) (the “Act”) to a specific situation described in your letter.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R3 dated December 30, 1996. This Directorate also provides technical interpretations of the various provisions of the of the Act but we do not provide tax planning advice.
The facts outlined in your letter appear to relate to actual proposed transactions involving particular taxpayers and therefore a binding determination from the Department regarding the applicability or the inapplicability of any provision of the Act can only be obtained by way of an advance income tax ruling request following the procedures outlined in IC-70-6R3. Nevertheless, we offer the following general comments in connection with your request which we hope is of assistance to you.
We agree that a securities lending arrangement, as defined in subsection 260(1) of the Income Tax Act (Canada) (the “Act”) does not include an arrangement between persons dealing at non-arm’s length such that the specific rules relating to a securities lending arrangement set out in the Act would not apply.
A compensatory payment and a lending fee involving non-arm's length participants would not be captured by the deeming provisions of subsection 260(8) of the Act. As a result we do not feel that these amounts could be properly classified as interest. However, in our view both the compensatory payment and the lending fee would either be subject to tax pursuant to subparagraph 212(1)(d)(i) of the Act for 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) assuming the lender to be a US resident.
The foregoing represents our general views with respect to the subject matter of your letter. The foregoing opinions are not rulings and in accordance with the guidelines set out in IC 70-6R3 they are not binding on Revenue Canada.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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