CRA confirms that there generally is no domestic secondary adjustment doctrine

The secondary adjustment doctrine in the transfer pricing area indicates, for example, that if it is found that Canco has been understating its income by undercharging for sales to its non-resident parent, then not only should there be a transfer-pricing adjustment to increase its income accordingly, but there also is a taxable benefit (subject to Part XIII tax) conferred on its parent if it does not promptly charge for the additional amount (see, e.g., TPM-02).

There is no comparable general doctrine lurking within the domestic attribution rules (e.g., s. 74.1 et seq.) or reallocation or imputed benefit rules (e.g., s. 103, 69 or 56(2)) so that, for example, if Partner B from a s. 103 perspective should rightfully have received 40% rather than 10% of the income of the partnership, there is no imputed obligation of Partner A to repay its excess draws to the partnership or Partner B.

Neal Armstrong. Summaries of 7 October 2016 APFF Roundtable, Q.19 under s. 103(1) and s. 74.1(1).