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.
T.B. Kuss (613) 957-2120
August 4, 1987
Dear XXXX
Re: XXXX Advance Income Tax Ruling
This letter acknowledges our conversation of July 27, 1987 in which you withdrew your request for an advance income tax ruling on behalf of the above-named taxpayers.
However, as discussed with you, we will respond to your request concerning the application of subsection 15(2) and paragraph 214(3)(a) of the Income Tax Act (the "Act") in a general manner in the context of the following hypothetical situation.
1. Mr. A is a resident of the U.S. for purposes of the Act.
2. Mr. A owns 47% of the issued shares of A Co., a Canadian-controlled private corporation.
3. A Co. will lend funds to Mr. A in order for Mr. A to refinance one of his rental properties situated in the U.S. Mr. A will receive the loan in his capacity as a shareholder of A Co.
4. The loan will be interest bearing and the interest rate and repayment terms will reflect current commercial practice.
5. The lending of money is not part of A Co.'s ordinary business.
We provide the following general comments.
The operation of subsection 15(2) and paragraph 214(3)(a) of the Act, as well as the Department's administrative practice regarding section 215 withholdings in such circumstances is described in paragraphs 9, 10 and 11 of IT-119R3 .
Subject to the application of paragraph 15(2)(b), it is our opinion the amount of the loan to A would be deemed by paragraph 214(3)(a) to be, for purposes of Part XIII, a dividend paid to Mr. A from a corporation resident in Canada. The rate of withholding tax applicable to the "dividend" would be subject to the Canada-U.S. tax convention in effect at the time the dividend is deemed to be paid.
We hope these comments are of assistance.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1987
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