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.
Dear Sirs:
Re: Subsections 15(1), 56(2) and 246(1) of the Income Tax Act (Canada) (the "Act")
In your letter of September 20, 1990, you requested our views on the application of subsections 15(1), 56(2) and 246(1) of the Act. We regret that other workload prevented us from replying earlier.
In the hypothetical situation you describe an individual is the sole shareholder of two taxable Canadian corporations ("Canco 1" and "Canco 2"), where taxable Canadian corporation has the meaning assigned by paragraph 89(1)(i) of the Act. Canco 1 loans or advances money to Canco 2 on an interest-free basis. You have asked if the individual would be considered to have received a benefit under subsection 15(1), 56(2) or 246(1) in the above situation. You have also asked for our comments on the finding of the Court in Helen Vine, in her capacity as Executrix of the Last Will and Testament of William J. Vine v. Her Majesty the Queen [[1990] 1 C.T.C. 18] (89 DTC 5528).
Our Comments
We understand that you have seen our previous letters of April 7, 1990 and August 21, 1990 to the XXX on very similar questions (copies attached). The applicability of subsections 15(1) and 56(2) in the hypothetical situation described above and our comments on the Helen Vine case have been addressed in those letters, and our views have not changed.
The possible inclusion of an amount in income pursuant to subsection 246(1) will depend on an examination of all the facts of a particular situation, including the purpose of the loan or advance.
You also asked if our opinion on the application of subsections 15(1), 56(2) or 246(1) would change if the amount of the loan were greater than the taxed retained earnings, presumably of Canco. The retained earnings of the borrower are not necessarily relevant to the application of these subsections. Note that paragraph 69(1)(a) will apply to determine the tax cost of the note to the lender.
Finally, you asked if our opinion would change if the individual were also the sole shareholder of a corporation not resident in Canada and not taxable under the Act, and the loan or advance were made by the individual's Canadian corporation to the non-resident corporation. In general, the tax consequences of loans to a non-resident corporation are established by subsections 80.4(2) and 15(2), subject to the exclusions provided for in 15(2.1).
Our comments are provided in accordance with the practice described in paragraph 21 of Information Circular 70-6R2 and consequently are not binding upon Revenue Canada, Taxation.
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© Sa Majesté la Reine du Chef du Canada, 1991
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