12 July 2011 External T.I. 2011-0393881E5 - Ordinary Business of Money Lending

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.

Principal Issues: Whether the exception in subsection 15(2.3) to the application of subsection 15(2) applies in a situation where a corporation makes loans to non-arm's length non-resident corporations.

Position: Question of fact. The fact that a lender may make a non-arm's length loan in a given situation would not by itself be a determinative factor that would automatically lead to the conclusion that the ordinary business of the lender is not money lending.

Reasons: We have previously issued favourable advanced income tax rulings on subsection 15(2.3) in the context of proposed transactions involving lending money to non-arm's length non-resident corporations.

XXXXXXXXXX
									2011-039388
									A. Townsend

July 12, 2011

Dear XXXXXXXXXX :

Re : Subsection 15(2.3) Ordinary Business or Lending Money

I am writing in response to your letter of January 13, 2011, in which you requested our opinion as to whether the exception in subsection 15(2.3) of the Income Tax Act to the application of subsection 15(2) would apply in the following situation.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

You have described a situation in which a Canadian resident corporation (Canco), which has been providing funding to non-arm's length Canadian corporations, is planning on expanding its funding activity to include loans to non-arm's length non-resident corporations. You asked if in our view the presence of arm's length loans is required to substantiate that the ordinary business of a Canco is money lending.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments.

For the exception in subsection 15(2.3) to apply in a given situation, the loans must be made in the ordinary course of the lender's ordinary business of lending money and at the time the loans are made, bona fide arrangements must be made for the repayment of the loans within a reasonable time. It is a question of fact whether a loan is made in the ordinary course of the lender's ordinary business of lending money and an accurate determination can only be made after a complete review of all the facts, circumstances and relevant documents in a given situation. In addition, this determination will only be made where the transactions are proposed and are the subject matter of an advance income tax ruling request.

However, we are of the view that the fact that a lender makes a non-arm's length loan in a given situation would not by itself be a determinative factor that would automatically lead to the conclusion that the ordinary business of the lender is not money lending. In fact, we have previously issued favorable advanced income tax rulings on subsection 15(2.3) in the context of proposed transactions involving lending money to non-arm's length non-resident corporations.

I trust the foregoing is of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch