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.
FOREIGN AFFILIATES DEEMED ACTIVE BUSINESS INCOME - INSURANCE PREMIUMS
Question
Canco is a Canadian corporation that owns 100% of the shares of a foreign affiliate ("FA1") resident in Ireland. FA1 insures the non-Canadian risks of other foreign affiliates of Canco including a foreign affiliate ("FA2") resident and carrying on an active business in the United States. While the insurance premiums paid by FA2 to FA1 are to obtain bona fide insurance coverage for the particular year in respect of FA2's active business they are not deductible by FA2 in the year they are paid or in any future year under U.S. tax law. Will the premiums received by FA1 from FA2 be deemed to be active business income of FA1 by reason of subparagraph 95(2)(a)(ii) of the Act and paragraph 5907(2)(j) of the Regulations?
Department's Position
Provided the insurance premiums paid to FA1 by FA2 were an expense incurred in the year by FA2 for the purpose of gaining or producing its active business income, they will be deducted from the active business income of FA2 pursuant to paragraph 5907(2)(j) of the Regulations. To the extent that such premiums are not included in computing FA1's income from an active business (It is a question of fact whether FA1 carries on an active business and whether such premiums form part of the income from that business.) they will be deemed to be active business income of FA1 pursuant to subparagraph 95(2)(a)(ii).
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, 1991
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, 1991
Email this Content