Section 17

Subsection 17(1) - Amount owing by non-resident


Liampat Holdings Ltd. v. The Queen, 96 DTC 6020, [1996] 1 CTC 343 (FCTD)

The taxpayer's counsel was unsuccessful in an argument that the deemed receipt of interest pursuant to s. 17(1) was a rebuttable rather than an irrebuttable presumption. Accordingly, the taxpayer was required to recognize deemed interest income on a loan made to a U.S.-resident related corporation where under the oral terms governing the loan, interest was only payable when the non-resident could afford to pay it or when the non-resident was wound up.

See Also

Upper Lakes Shipping Ltd. v. MNR, 92 DTC 2381, [1993] 1 CTC 2011 (TCC)

An agreement between the taxpayer and the other arm's length shareholder of a Bermudan subsidiary ("Open Bulk") provided that to the extent that Open Bulk was unable to obtain bank financing each shareholder would fund 1/2 of the capital needs of Open Bulk through the making of loans payable on demand and bearing interest at the rate of 5% "or such other rate as the parties hereto may from time to time agree". The loans were made between 1971 and 1977.

Christie A.C.J. found that the pre-1979 version of s. 17(1) "clearly implied that 5% per annum was interest at a reasonable rate regarding loans preceding that date" (p. 2383) and that the amendments effective January 1, 1979 (which replaced the reference to 5% with a reference to the prescribed rate) should not be interpreted as "having the retrospective effect of creating new obligations on [the taxpayer] regarding the amount of interest to be included in computing its income commencing January 1, 1979, with respect to the loan transactions it had entered into with Open Bulk prior to that date" (p. 2384). Accordingly, s. 17(1) did not apply given that the taxpayer continued to charge interest on the pre-1979 loans at a rate of 5% per annum.

Leonard Reeves Incorporated v. Minister of National Revenue, 91 DTC 425, [1991] 1 CTC 2293 (TCC)

The Minister conceded that s. 17 of the Act does not authorize the imputation of interest with respect to loans made by a Canadian corporation to a partnership.

E.H. Price Limited v. Minister of National Revenue, 91 DTC 135, [1991] 1 CTC 2045 (TCC)

Trade accounts receivable owing to the taxpayer by an Australian corporation in respect of merchandise shipped to the Australian corporation by the taxpayer for resale did not constitute loans for purposes of s. 17(1).

A.C. Simmonds & Sons Ltd. v. MNR, 89 DTC 707, [1990] 1 CTC 2087 (TCC)

Because a U.S. affiliate ("Dynacharge U.S.") of the taxpayer had insufficient bank credit, the taxpayer obtained letters of credit addressed to Japanese suppliers of Dynacharge U.S., and was reimbursed by Dynacharge U.S. for the expenses the taxpayer incurred (including interest and commissions) in arranging for the credits. Christie A.C.J. held that s. 17(1) did not apply to this arrangement notwithstanding that amounts paid in respect of the letters of credit were reflected as assets (labelled "Due from affiliated companies") in the taxpayer's balance sheet. He stated:

"[S]ubsection 17(1) is only concerned with money loaned ... I do not regard what was done by the appellant in establishing those credits and the benefit flowing from them to Dynacharge U.S. as constituting the creation of contracts between them whereby the appellant delivered sums of money to Dynacharge U.S. upon agreement by the latter to repay them without interest."

Administrative Policy

28 May 2019 Internal T.I. 2018-0772971I7 - Interaction between sections 94, 17, 247

triggering of s. 94(2)(a) by interest-free loan to the sub of a non-resident trust was independent of the application of s. 17 to the loan

The beneficiaries of CdnTrust, a trust resident in Canada that wholly-owns Canco, and of NRTrust, a factually non-resident trust that wholly-owns LLC1, are Canadian-resident and U.S.-resident members of the same family. Canco makes an interest-free loan to LLC1.

The Directorate concluded that Canco thereby was rendered a resident contributor to NRTrust (so that NRTrust was deemed to be a s. 94-resident trust) because it would be reasonable to view there as having been a resulting increase in the fair market value of the LLC1 shares.

In the Directorate’s view, this result obtained even if s. 17 (or s. 247(2)) applied to that loan, stating: would not change the conclusion that NRTrust was tainted as a deemed s. 94-resident trust, stating:

First, any income deemed to be included in the income of Canco by virtue of subsection 17(1) would not have any impact on the fair market value of the shares of LLC1. Second, the increase in fair market value of the shares of LLC1 only needs to occur at the time of the loan in order for paragraph 94(2)(a) to apply to deem there to be a contribution. The wording of paragraph 94(2)(a) requires that you determine whether there has been an increase in fair market value at the time the loan was made. Therefore, any transactions or events that occur subsequent to the time the loan was made will not change the determination regarding the application of paragraph 94(2)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(f) failure to charge for services rendered by a Canco to a NR sub of a NR trust tainted the NR trust under s. 94(2) 258
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(a) NIB loan by a Canco to a NR sub of a NR trust tainted the NR trust under s. 94(2) 222
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) any subsequent adjustment under s. 247(2) would not affect the application of s. 94(2)(a) to an NIB loan by Canco to a NR Trust sub 331

9 March 2011 External T.I. 2003-0017231E5 - Application of section 17

The phrase "owes an amount" in s. 17(1) is not limited to money that is loaned, and includes unpaid consideration, amounts owing to a corporation in Canada, accrued liabilities in its favour and unpaid dividends. In determining how long an amount has remained outstanding, the relevant period commences when the amount becomes owing to the corporation resident in Canada. For example, if a foreign corporation transfers a loan to a Canadian corporation, s. 17(1) does not apply if the loan is repaid less than 12 months later, even if the loan was outstanding for more than a year.

16 October 2007 Internal T.I. 2007-0253161I7 F - Revenu d'intérêts réputés

“amount owing” [“créance"] refers to current rather than original balance

Canco, which had a May 31 year end, on June 1, 2004, sold a property to an unrelated non-resident corporation (Foreign Co), giving rise to an unpaid non-interest bearing balance of $500,000. Foreign Co repaid $25,000 every month, so that on June 2, 2005, was $200,000. Should the interest under ss. 17(1)(a) and (b) be computed based on a debt amount of $200,000, or $500,000? The Directorate stated:

[O]nly the portion of the debt (the "amount"), expressed in money, that "has been or remains outstanding" for more than one year is relevant for the purposes of calculating interest under paragraphs 17(1)(a) and (b). Furthermore, paragraphs 17(1)(a) and (b) no longer refer to "une créance" or "an amount" but rather to "la créance" or "the amount owing" that has been or remains outstanding for more than a year. In your situation, we are of the view that Alternative 1 should be adopted and thus, for the purposes of calculating interest, the amount owing for the taxation year ended May 31, 2005, was $200,000.

16 February 1995 External T.I. 9432245 - INTEREST ON LOAN TO NON-RESIDENT

Where the non-resident subsidiary subsequently becomes resident in Canada, s. 17(1) will cease to apply to any amounts still outstanding after that time.

October 1992 Central Region Rulings Directorate Tax Seminar, Q. K (May 1993 Access Letter, p. 231)

The reasonable rate of interest should reflect the amount that the lender would expect to receive if the loans were made on an arm's length basis.

12 March 1992 External T.I. 5-910839 -

With respect to an advance made by a Canadian licensor to a U.S. licensor that was repayable only out of royalties to be earned by the licensor, RC stated that "generally where the agreements in question do not contain an unconditional covenant to repay the principal amount of money advanced, the transaction cannot be considered to represent the loaning of money".

Words and Phrases

10 March 1992 T.I. (Tax Window, No. 17, p. 20, ¶1800)

An advance by a Canadian corporation to an unrelated U.S. corporation to assist the U.S. corporation in the development of specific computer software programs, where the advance is recoverable by the Canadian corporation by way of set-off against its royalty obligations to the U.S. corporation, the advance will not be a loan because there is no unconditional covenant to repay the principal amount of the advance and because the Canadian corporation must look exclusively to the commercial success of the software for reimbursement.

6 February 1992 T.I. 903218 (March 1993 Access Letter, p. 68, ¶C9-257; Tax Window, No. 16, p. 23, ¶1734)

S.17(1) will not apply if it is determined that nil is the reasonable rate of interest in the particular situation.

91 C.R. - Q.52

Re consequences of repossession by a non-resident individual.

17 April 1991 Memorandum (Tax Window, No. 2, p. 17, ¶1203)

On a merger of a direct U.S. subsidiary with a grandchild U.S. subsidiary under U.S. laws which provide that the assets and liabilities of a corporation which cease to exist on the merger are acquired by the survivor corporation, a loan between the Canadian parent and the grandchild subsidiary will be extinguished and s. 17(1) will cease to apply. On the other hand, where a Canadian corporation amalgamates with its wholly-owned subsidiary, the amalgamated corporation will be deemed by s. 87(2)(e) to have acquired a loan which the Canadian parent had made to a U.S. corporation which was a wholly-owned subsidiary of its Canadian subsidiary, with the result that s. 17(1) will continue to apply. The relieving provisions of s. 17(3) does not apply in the absence of a rule analogous to s. 87(7).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 17 - Subsection 17(3) 63

3 October 1990 Memorandum (Tax Window, Prelim. No. 1, p. 19, ¶1029)

Where a Canadian lender assigns the non-resident loan, s. 17(1) cannot apply to the assignee because the assignee did not make a loan to the non-resident debtor.


N. Boidman, "Revised Loan Proposals would Hit both Canadian and Foreign-Based Multi-Nationals: A Startling About-face", Tax Management International Journal, Vol. 28, No. 2, February 12, 1999, p. 75.

Elinore J. Richardson, A. Nikolakakos, "Proposed Amendments to the Taxation of Foreign Source Income", Corporate Finance, Vol. VII, No. 1, 1998, p. 574.

Subsection 17(1.1)

Administrative Policy

7 October 2020 APFF Roundtable Q. 10, 2020-0852221C6 F - Interest-free loan to a related foreign company

s. 17 generally does not apply to loans made by individuals, but s. 247 can apply

Is an individual who makes an interest-free loan to a non-resident corporation with which the individual does not deal at arm's length required to include in income an amount equaling the interest that would have been received had an arm's length rate been applied in accordance with s. 247? Before responding affirmatively, CRA stated:

Subsection 17(1) generally applies where a non-resident person owes an amount that has been or remains outstanding for more than a year to a related corporation resident in Canada, pursuant to paragraphs 17(1.1)(a) and 17(1.1)(b). …

Except in situations of indirect arrangements or loans referred to in subsection 17(2), section 17 generally does not apply to an amount that is owed to an individual.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(a) s. 247 would apply to an interest-free loan made by a Canadian individual to a non-arm’s length non-resident corporation 255

26 April 2017 IFA Roundtable Q. 1, 2017-0691071C6 - Interaction between s17 and s247

s. 17(1) does not oust application of s. 247(2)

CRA indicated that even though a cross-border loan from Canco to a CFA was subject to s. 17 (so that interest income was imputed at 1%), the total imputed interest inclusion would be 3%, if that were the s. 247(2) arm’s length rate. However, if the loan was of the type described in s. 17(8), but did not (in CRA’s view) technically come within the s. 247(7) safe harbour because it was outstanding for less than a year, CRA would consider that loan to be shielded from the application of s. 247(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(7) s. 247(2) generally applies to boost the imputed cross-border interest arising under s. 17 162

Subsection 17(2) - Anti-avoidance rule — indirect loan

Administrative Policy

2012 Ruling 2012-0452291R3 - XXXXXXXXXX - ATR

underline;">: Existing structure.

A Canadian public company (Pubco) has x% (apparently, over 50%) of its common shares held by a non-resident public company (Norco1). Pubco holds a y% indirect equity interest in a non-resident corporation (Opco), which holds the "Project" in Country 3 (perhaps, a development stage mining project), and is also resident in Country 3. A local government-owned corporation (Stateco), which has an entitlement to elect certain of the Opco directors, holds the balance of the shares of Opco. The indirect equity stake of Pubco in Opco is held partly through Forco2 (resident in Country 2), which is a subsidiary of Forco1 (also resident in Country 2), which is held by Pubco and a Canadian subsidiary of Pubco ("Cansub"). The balance of the equity stake is held through a chain of non-resident holding companies (Holdco1, holding Holdco2, holding Holdco3) resident in three different non-Canadian jurisdictions.

Proposed transactions

Additional internal debt and equity financing will be provided to Opco in accordance with the thin capitalization rules of the local country (Country 3), in accordance with two sets of transactions.

  • Pubco (acting through a branch in Country 1 – assumed here to be Luxembourg) will subscribe with cash for common shares and/or mandatorily redeemable preferred shares ("MRPS") of Finco. Finco is a Luxembourg company (likely, a S.à r.l.). The MRPS are voting, do not bear dividends, are convertible at any time into a fixed value of Finco common shares or another class of MRPS at the holder's option, are redeemable before the maturity date at the holder's option and are required to be redeemed by Finco on the specified maturity date. They are debt for Luxembourg tax purposes, but shares for Luxembourg corporate purposes.
  • Finco will lend the net proceeds (as the Finco Loan) to Forco2 which, in turn, will use the proceeds to make the Forco2 Loan (bearing interest at a positive spread) to "XXXX" which, in turn, will acquire common shares of Opco, to be used by Opco for its operational and capital requirements.
  • Forco2 will transfer a portion of its shares of Opco to XXXX in exchange for an interest-bearing limited recourse obligation (Note A)
  • Finco, upon a further subscription by the Luxembourg branch of Pubco for common shares or MRPS, will lend the net proceeds (as Loan X, bearing interest at a positive spread) to Forco2 which, in turn, will use the proceeds to make Loan Y to Opco for its operational and capital requirements.
  • Pubco (and/or Cansub) will subscribe cash for Equity Investment A in Forco1, which will use such proceeds to make Equity Investment B in Forco2, which will use such proceeds to make Equity Investment C in Opco
  • Application of s. 95(2)(a)(i) to income on Forco2 Loan and Note A, and s. 95(2)(a)(ii)(B) to Finco Loan
  • Non-application of ss. 17(1) and (2) to Pubco
  • Non-application of ss. 95(6)(b) and 17(4)(b) to Pubco's direct acquisition of shares in Finco or its indirect acquisition of shares of Forco2
  • Non-application of s. 258(3)
  • Opinion that s. 212.3(2) may apply as "the exception provided for in subsection 212.3(16) may not be met here"
  • Finco is a corporation, ownership interests in Finco are shares, and distributions of its profits are dividends (and similarly re Forco2 and Opco)


Joanna R. Barsky, "CCRA Oversteps its Bounds With Outbound Loans", Canadian Current Tax, Vol. 16 No. 1, October 2005, p. 1.

Allan R. Lanthier, "Not Comfortably in Debt", Canadian Tax Highlights, Vol. 8, No. 9, 26 September 2000, p. 70.

Subsection 17(3) - Exception to anti-avoidance rule — indirect loan


Massey-Ferguson Ltd. v. The Queen, 77 DTC 5013, [1977] CTC 6 (FCA)

It was found that the taxpayer had loaned funds on a non-interest-bearing basis to a wholly-owned Canadian subsidiary ("Verity") whose business included the making of loans to affiliates, and that Verity as a part of that business on-lent the funds to a U.S. operating subsidiary ("Perkins"), notwithstanding that the funds in question were transferred directly from the taxpayer to Perkins and notwithstanding that Verity had no bank account or employees. The Crown's contention, that the loan should be regarded as having been made directly by the taxpayer to Perkins, and that the supposed routing of the loan "via" Verity was a sham, accordingly failed.

See Also

Distillers Corp - Seagrams Ltd v. MNR, 80 DTC 1649 (T.R.B.)

An indirect subsidiary of the taxpayer did not qualify as a subsidiary controlled corporation given that "the word 'belong' means that the shares must belong directly to the parent company". (p. 1659)

Words and Phrases

Administrative Policy

31 January 1994 External T.I. 9331835 - LOANS TO NON RESIDENTS USED IN THEIR BUSINESS

RC's answer to Question 10 of the 1988 Revenue Canada Round Table remains the same.

93 CPTJ - Q.4

S.17(3) will not apply where a Canadian corporation loans money on an interest-free basis to a U.S. holding company which then uses the proceeds to make an interest-bearing loan to, or to subscribe for shares of, its U.S. operating subsidiary, notwithstanding that the results of the two U.S. corporations are consolidated for U.S. tax purposes.

91 CPTJ - Q.8

The exception in s. 17(3) will not apply where a Canadian parent makes an interest-free loan to its wholly-owned U.S. subsidiary (a holding company) which in turn re-loans the amounts on an interest-free basis to a wholly-owned operating U.S. subsidiary.

17 April 1991 Memorandum (Tax Window, No. 2, p. 17, ¶1203)

Where a Canadian corporation makes a non-interest bearing loan to its wholly-owned U.S. subsidiary and then transfers the shares of the subsidiary to its Canadian parent (i.e., a grandparent of the U.S. subsidiary), after the transfer s. 17(3) will no longer apply to the loan because the U.S. subsidiary is no longer a "subsidiary controlled corporation" of the Canadian transferor.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 17 - Subsection 17(1) 134

26 March 1990 T.I. (August 1990 Access Letter, ¶1366)

In light of the meaning given to the word "belongs" by the trial judge in Massey-Ferguson, the term "subsidiary controlled corporation" does not include a second-tier foreign affiliate.

88 C.R. - Q.10

If the activities of the subsidiary consisted of financing other corporations, then the number of loans and the reasonableness of the interest rate charged would be factors in deciding whether these activities were a business.

80 C.R. - Q.28

If the principal activity of a nonresident subsidiary controlled corporation consists of financing other corporations, then the number of loans and the reasonableness of the interest rates charged would be factors in deciding whether the activities were a business. [C.R.: 20(1)(p)]

S.17(1), in any event, would not be applied if the subsidiary used the loan proceeds to subscribe for shares or make an interest-bearing loan to another nonresident subsidiary corporation, and such end user employed the funds in its business.

79 C.R. - Q.25

Where the funds are invested by the wholly-owned foreign subsidiary ("WOS") in a controlled subsidiary for use in gaining or producing income from its business, RC will not normally impute interest if the only undertaking of WOS is investing in its subsidiaries.

Subsection 17(7) - Exception


Mark D. Brender, Marc Richardson Arnould, Patrick Marley, "Cross-Border Cash-Pooling Arrangements Involving Canadian Subsidiaries: A Technical Minefield", Tax Management International Journal, 2014, p. 345.

Cash pooling description (p.345)

[W]e will examine a typical cash-pooling arrangement involving a Canadian subsidiary of a multinational group. Under such an arrangement, each member of the pool, including the Canadian subsidiary ("Canco"), transfers funds to, and/or receives funds from, a group member that is designated as the pool head, in this case a foreign subsidiary ("Forco") of the foreign parent corporation, resulting in intragroup payables and receivables between the pool members, including Canco and the pool head.

Effect of withholding refund (p. 346)

Where §15(2) applies, the amount of the loan from Canco to the pool head is deemed to be a dividend, and therefore subject to Canadian withholding tax at a rate of 25%, unless reduced under a tax treaty, and the interest imputation rule in §80.4(2) will not apply. A refund of the withholding tax is generally available under §227(6.1) when the loan is repaid (other than as part of a series of loans and repayments). In addition, to the extent withholding tax has been paid with respect to the loan, §17(1) will not apply to treat the pool head as having accrued interest. However, if on the repayment of all or any portion of the loan the pool head claims a refund of the withholding tax, §17(1) will apply to impute interest income to Canco on the amount owed by the pool head. A claim for a refund of withholding tax must be made by written application by the pool head within two years after the end of the calendar year in which the repayment was made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) 235

Subsection 17(8) - Exception

Administrative Policy

5 May 2021 IFA Roundtable Q. 5, 2021-0887671C6 - 2021 IFA Q5 - Applicability of 247(7)

s. 17(18) exclusion for loan by related Cdn. parternship to LP did not apply for s. 247(7) purposes

A limited partnership (LP) between two resident related corporations (ACo and BCo) made a non-interest bearing loan to FA, which was wholly-owned by ACo. FA used the loan proceeds for the purpose of earning income from an active business, so that there was no imputed income to the partners under s. 17(1) by virtue of ss. 17(4), (8), and (13). However, s. 247(7), which generally avoids the imputation under s. 247(2) of interest on indebtedness that is covered by s. 17(8), is only stated to apply to amounts owing to a resident corporation, and not to a Canadian partnership.

CRA stated that it was “not prepared to take an administrative position to consider that subsection 247(7) would apply in respect of the loan between the FA and LP … .” In this regard, it indicated that:

  • Ss. 17 and 247 “each have a distinct and separate role,” so that “the exception from application of one of these sections” does not generally establish “an intention to preclude the application of the other section.”
  • Further, “adopting the requested administrative position could potentially facilitate the use of structures using hybrid entities to achieve a tax benefit.”
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(7) a s. 17(8) exception for a loan by a partnership of two related Cancos to an FA does not imply a s. 247(7) exclusion of s. 247(2) 231

Paragraph 17(8)(a)

Subparagraph 17(8)(a)(i)

Administrative Policy

15 May 2017 External T.I. 2016-0676701E5 - Subsection 17(8)

CRA applies Trans-Prairie indirect use test to loan used to redeem shares, return capital or pay dividends

When asked to clarify its views on the indirect use of funds in the context of s. 17(8)(a)(i)(A), CRA stated:

We… agree that the exceptions to the direct use test provided in section 1.45, et seq. of Income Tax Folio S3-F6-C1 can apply to clause 17(8)(a)(i)(A).

This is a change in position [from 2000-0060475] regarding the application of subsection 17(8) to a loan or advance of money to a controlled foreign affiliate that the affiliate uses to redeem shares, return capital or pay dividends.

Subparagraph 17(8)(a)(ii)

Administrative Policy

13 January 2012 Internal T.I. 2011-0414111I7 F - Deemed Interest Incomes - Exception 17(8)

CFA 1's purchased debt of CFA 2 did not qualify as a loan or advance

Where a taxable Canadian corporation makes a non-interest bearing loan to a controlled foreign affiliate (CFA 1) which, in turn, uses the proceeds to acquire the debt (the "Debt") of another CFA (CFA 2) from a non-arm's length Canadian corporation. CRA found that s. 17(8)(a)(ii) was not available as the Debt would not be considered to be a loan to the second CFA. In this regard, CRA quoted a judicial statement that "the courts have concluded that the concept of loan or advance is related to the existence of a payment of money between two parties and to the presence of that relationship of lender / borrower," and then stated:

[T]he contractual relationship between CFA 1 and CFA 2 with respect to the Debt establishes a creditor/debtor relationship and not a lender/borrower relationship. In fact, there was no agreement, either implied or explicit, nor a payment or acceptance of money between CFA 1 and CFA 2, which could enable us to conclude that there is a lender/borrower relationship. Although CFA 1 became the creditor of CFA 2 while acquiring the Debt, it never made a loan per se.

Words and Phrases
loan advance

Subsection 17(8.1) - Borrowed money

Paragraph 17(8.1)(b)

Administrative Policy

5 June 2015 Internal T.I. 2015-0569061I7 F - Non-interest-bearing loan to a controlled foreign affiliate

debt owing to CFA parent, which had funded active business assets and was assumed on absorptive merger, qualified under s. 17(8.1)(b)

CFA 2, a controlled foreign affiliate of the taxpayer (a corporation resident in Canada), used the proceeds of a loan received from another CFA (CFA 1), to acquire from a third party (and as its only asset) shares of a corporation carrying on an active business (CFA 3). The interest paid by CFA 2 to CFA 1 was deemed active business income under s. 95(2)(a)(ii)(D). The following year, CFA 2 was merged into CFA 3, with CFA 3 as the survivor. The interest now payable by CFA 3 to CFA 1 was recharacterized under s. 95(2)(a)(ii)(B). In the third year, the taxpayer made a non-interest-bearing loan to CFA 3 to fund the repayment by CFA 3 of the loan owing to CFA 1. Did the exception in s. 17(8) apply? The Directorate responded (TaxInterpretations translation):

[P]aragraph 17(8.1)(b) provides that the following conditions must be satisfied in order that the use of the money borrowed by CFA 3 from the taxpayer be deemed the same as for the amount owing by CFA 3 to CFA 1: first, CFA 3 must owe an amount for property previously acquired; second, such amount must have been in respect of the acquired property throughout the period commencing with the time when the amount became owing by the CFA and ending at the time when the amount was paid; third, the property must have been acquired and the amount must have become owing by the CFA after the last time at which it became a CFA of the Taxpayer; and, fourth, the property acquired must have been used by the CFA principally to earn income from an active business or income which is recharacterized as income from an active business by virtue of subsection 95(2).

...[T]o the extent that it can be established that the amount owing which was assumed by CFA 3 on the absorptive merger was in respect of assets previously acquired by CFA 3 in the course of carrying on an active business, the loan to CFA 3 by the Taxpayer should be considered as having been incurred for the purpose of earning income from an active business. Under our understanding of the facts, such a link between the amount owing and the assets acquired by CFA 3 before the merger can be made out in the current situation - because the assets of CFA 3 were used principally for the earning of income from an active business - and the Taxpayer can accordingly access the exception in subparagraph 17(8.1)(a)(i), by virtue of the application of paragraph 17(8.1)(b) and subsection 17(8.2) to the repayment of the amount owing by CFA 3 to CFA 1.

Subsection 17(11.2) - Back-to-back loans

Administrative Policy

9 March 2011 External T.I. 2003-0017231E5 - Application of section 17

CRA considers a deposit with a bank or other financial institution to be a loan to the institution, including for the purposes of s. 17(11.2).

Subsection 17(15) - Definitions

Controlled foreign affiliate


Angelo Nikolakakis, "Lehigh Cement Limited v. The Queen – A Bridge Too FAAAR", International Tax Planning, Volume XIX, No. 1, 2013, p. 1284

In the course of a submission that it was contrary to the scheme of the Act to apply s. 95(6)(b) to attack indirect loans to a non-resident parent, he stated:

Purpose of CFA definition (p. 1290)
  • Earlier changes to section 17 (introduced under the 1998 federal budget) also directly targeted the establishment of a Finco to make an "indirect loan" to a borrower Opco that was held by a non-resident ultimate parent corporation, but only where the borrower Opco was not a "controlled foreign Affiliate" under a special definition of that term that required Canadian control, though again not necessarily by the Finco owning taxpayer, and again subject to a transitional period. It cannot be that paragraph 95(6)(b) applies to defeat a structure that is deliberately facilitated by subsections 17(3)(and (8).

Exempt loan or transfer

Administrative Policy

2012 Ruling 2011-0417711R3 -

Canco, which is a grandchild subsidiary of Parentco (a resident of Country 1), borrows money from time to time under note offerings in Canada or through issuing commercial paper in Canada, in each case, under a Parentco guarantee, and uses the proceeds to make interest-bearing loans (at not less than the rate prescribed under Regulation 4301(c), and at a positive spread, and at a term of X to Y years) to non-resident members of the Parentco group which are not foreign affiliates of Canco.

Rulings that such loans will be exempt loans under s. 17(15), and will not be subject to s. 15(2) by virtue of s. 15(2.3).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.3) Finco makes eligible under ordinary course exemption 118