3 December 1990 Ministerial Letter 902528 F - Interest-free Loans

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.

SUBJECT:  Subsection 69(3) of the Income Tax Act

This is in reply to your memorandum dated September 20, 1990 whereby you requested our opinion as to whether subsection 69(3) of the Act can apply to deem interest to have been received by a taxpayer in circumstances where subsection 17(1) does not apply. In particular, you inquired concerning the following situations:

1.     Interest free loan made by an individual resident in Canada to a related non-resident.

2.     Interest free loan made by a Canadian partnership to a related non-resident.

3.     Interest free loan made by a trust resident in Canada to a related non-resident.

4.     A corporation resident in Canada acquires by assignment or purchase from a related taxpayer a non-interest bearing debt, bond or debenture of a related non-resident. Subsection 17(1) does not apply as the corporation resident in Canada did not make the loan to the related non-resident as required by that provision.

5.     A corporation resident in Canada has an interest free amount receivable from or due from a related non-resident resulting from a sale to that related non-resident. Subsection 17(1) does not apply as the corporation resident in Canada did not make the loan to the related non-resident as required by that provision.

Our Comments

21(1)(b)

So far as we can determine, this issue has not been considered by the Courts.

It appears to be generally accepted that subsection 69(3) does not apply to loans or debts.

21(1)(b)

for DirectorReorganization and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch