27 February 1990 Administrative Letter 59516 F - Shareholder Debt Benefit

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.

February 27, 1990

Dear Sirs:

Re:  Subsection 15(2) of the Income Tax Act (the "Act")

We are writing in response to your letter of January 29, 1990 in which you requested our views concerning subsection 15(2) of the Act and its application where a non-resident corporation connected with a shareholder of a Canadian company ("Canco") collects the accounts receivable of Canco and pays interest to Canco at a prescribed rate on the average monthly balance outstanding.

The situation you describe appears to relate to transactions that are on-going.  In these circumstances it is the district office that will make the final determination regarding the applicability of subsection 15(2).  However, we offer the following general comments.

We are unable to confirm your view that subsection 15(2) would not apply to the situation described in your letter.  Paragraph 15(2)(b) does not exempt this arrangement since, in our view, the situation described would be considered a "series of loans or other transactions and repayments".

In our view, it is a question of fact whether or not paragraph 15(2)(a) applies to the above arrangement.  Such a determination could only be made with reference to all of the agreements between parties.  The administrative position outlined in paragraph 15 of Interpretation Bulletin IT-119R3 appears not to be applicable since the indebtedness does not arise as a result of trade sales to the non-resident connected corporation.

The opinions expressed in this letter are provided in accordance with the practice described in paragraph 24 of Information Circular 70-6R.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate