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.
QUESTION 4
If an individual resident in Canada guarantees a loan, made by a third party with whom he deals at arm's length, to a corporation which is a "specified person" with respect to him under paragraph 74.5(8)(b) of the Act, would the amount deemed to have been received by the guarantor pursuant to subsection 74.4(2) of the Act be reduced by the interest paid by the corporation to the arm's-length lender. If so, is this based on paragraph 74.4(2)(e) of the Act?
DEPARTMENT'S POSITION
Pursuant to paragraph 74.5(7)(a) of the Act, for the purposes of sections 74.1, 74.2, 74.3 and 74.4, the property loaned by the third party is deemed to have been loaned by the above-mentioned individual to or for the benefit of the corporation. Assuming that one of the main purposes of the loan may reasonably be considered to be to reduce the income of the individual and to benefit a "designated person" (as defined in subsection 74.5(5) of the Act) in respect of the individual, subsection 74.4(2) of the Act will apply for any taxation year in which the loan is outstanding and the individual is resident in Canada to determine the amount that is deemed to have been received as interest in the year by the individual.
Paragraph 74.4(2)(e) of the Act does not permit interest payments received by the third party from the corporation to be deducted when making the above-mentioned calculation, since the individual is not deemed to have received such interest payments. We understand that the Department of Finance is aware of this situation and is considering an amendment to the Act.
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, 1989
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, 1989
Email this Content