CRA illustrates an ordering rule for determining whether s. 15(2.17) applies to a cross-border notional cash pooling arrangement – and doubts that the s. 15(2.6) exception applies

1 June 2025 - 11:37pm
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CRA indicated that anticipated frequent and ongoing movements under a notional cash-pooling arrangement would likely be considered to form part of a series of loans, repayments, and other transactions for s. 15(2.6) purposes.

CRA then provided the following simple example illustrating the application of the back-to-back rules in ss. 15(2.16) to (2.19) to a notional cash-pooling arrangement involving Canco and two affiliated foreign companies in the pool (Forco1 and Forco2). The 2nd, 3rd and 4th columns show amounts advanced into the pool (if positive) or taken out of the pool (if negative) by Canco, Forco1 and Forco2, respectively, and the 5th column shows the net amount on deposit with the group bank.

Canco

Forco1

Forco2

Balance

1 Oct

$0

$10

$(5)

$5

Canco is not in the pool, so that nothing has yet happened.

5 Oct

$5

$10

$(5)

$10

Canco deposits $5 into the pool. There is no deemed loan under s. 15(2.17) because, although Forco2 is $5 in overdraft, Forco1 notionally covers that overdraft.

15 Oct

$5

$10

$(15)

$0

Forco2 withdraws $10, triggering a deemed loan under s. 15(2.17), because it is reasonable to conclude that the $15 overdraft from Forco2 is made possible by the $5 balance of Canco - i.e., Forco1's positive balance is insufficient to cover Forco2's overdraft.

20 Oct

$5

$15

$(15)

$5

This $5 increase for Forco1 does not eliminate the deemed $5 loan of Canco to Forco2: no relevant change.

25 Oct

$0

$15

$(15)

$0

Canco's $5 withdrawal results in a deemed repayment of the deemed Oct. 15 loan. However, this likely occurs as part of a series of transactions so that there might not be a refund of the withholding tax under s. 214(3)(a).

26 Oct

$10

$15

$(15)

$10

Canco deposits $10. S. 15(2.17) does not apply, similarly to Oct. 5 (Forco1's positive balance notionally covers Forco2's overdraft).

27 Oct

$10

$10

$(15)

$5

Forco1 withdraws $5. This triggers a $5 deemed loan from Canco, similar to Oct. 15.

28 Oct

$5

$10

$(10)

$5

Forco2 pays off $5 and Canco withdraws $5: this triggers a repayment under s. 15(2.19), similar to Oct. 25.

Given that the s. 15(2.6) exception is problematic, Canco may wish to make a PLOI election with its non-resident parent pursuant to s. 15(2.11). CRA will be announcing the details of a simplified PLOI election on its website.

Neal Armstrong. Summaries of 28 May 2025 IFA Roundtable, Q.3 under s. 15(2.17), s. 15(2.11) and s. 15(2.6).