Section 17.1

Subsection 17.1(1) - Deemed interest income — sections 15 and 212.3

Administrative Policy

6 September 2023 Internal T.I. 2019-0805481I7 - Interaction of 17.1(1) & 247(2)

interest can be imputed under s. 247(2) to a PLOI which already is subject to s. 17.1 imputed interest

A corporation resident in Canada (“CRIC”) made various loans to an indirect wholly-owning parent which bore interest, payable at least annually, at a floating rate equal to the prescribed rate under Reg. 4301(b.1), with a timely joint election under s. 15(2.11) being made by them for each of those loans to qualify as a “pertinent loan or indebtedness” for the purposes of ss. 15(2) and 17.1(1). In finding that CRA could apply both ss. 17.1 and 247 to these loans (presumably meaning that if the arm’s-length rate was higher than the prescribed rate, interest at that higher rate would be imputed), the Directorate stated:

Subsection 247(2) can apply to debts owing by a non-resident person to a Canadian resident corporation with which the non-resident person does not deal at arm’s length, to which subsection 17.1(1) applies. More specifically, we submit that the principle of statutory interpretation according to which a specific provision in a statute precludes the application of a general provision in that statute, commonly known as the rule of implied exception, does not apply with respect to sections 17.1 and 247 because there is no conflict between those two provisions and they do not interfere with their policy objectives. In short … subsection 247(2), which was broadly worded to embody the arm’s length principle, was meant to apply to all cross-border transactions, arrangements or events, including financial transactions, between non-arm’s length persons or partnerships, unless a specific exclusion applies.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2.1) there is no conflict in applying both ss. 17.1 and 247(2) to impute interest on a PLOI 272

6 August 2014 External T.I. 2014-0519431E5 - Section 15(2.12)

amended return not expected

Is the CRIC required to file an amended return, on late-filing a PLOI election, to reflect the additional s. 17.1(1) interest income? CRA stated:

[A] valid PLOI election must … include the details indicated on …Pertinent loans or indebtedness … .You may also wish to include a calculation of the change in income of each affected taxation year. Accordingly, the election will contain enough information to enable the CRA to assess the tax consequences. Therefore … the CRIC would not be required to file an amended corporate tax return… .

Pertinent loans or indebtedness 17 January 2014

Interest income determined under section 17.1 of the Act should be reported by the CRIC on Schedule 125, Income Statement Information, under field code 8230, "Other revenue".


Corporation A, a non-resident corporation, controls Corporation B, a CRIC with a December 31 tax year-end. On January 1, 2014, Corporation A borrows $5,000,000 from Corporation B at 0% interest. By December 31, 2015, Corporation A has not repaid the loan. If Corporation A and Corporation B choose to elect under subsection 15(2.11) of the Act for the debt between them to be a PLOI, there is no Canadian withholding tax on a deemed dividend and, instead, Corporation B has deemed interest income starting January 1, 2014 at the regular prescribed rate (rounded to two decimal places instead of rounded up to the next whole number) plus four percentage points (4%).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.11) amended return not expected/CRA will assess Part XIII tax after 2 years if late election not yet filed 231

4 June 2014 External T.I. 2014-0517151E5 - S. 17.1 and debt denominated in foreign currency

prescribed interest on foreign currency PLOI translated at spot rate when loan made

A non-resident corporation owes a foreign-currency denominated amount to a CRIC which is a pertinent loan or indebtedness (a "PLOI"), as defined in s. 15(2.11) or 212.3(11), and the CRIC has not made a functional currency election pursuant to s. 261(3). How is the s. 17.1 income inclusion computed in Canadian dollars under the A-B formula? After referring to the reference in s. 261(2)(b) to "the relevant spot rate for the day on which the particular amount arose," CRA stated:

The moment the PLOI arose is the moment the indebtedness has been created. Therefore, the prescribed rate of interest [referenced in A]… will be applied to the principal of the loan converted in CAN$ using the relevant spot rate at the time the indebtedness has been created. …

Element B of the formula is the amount actually included in the CRIC's income on account of the interest with respect to the PLOI. …The moment such an inclusion arises is the moment the interest is received or becomes receivable… .Therefore, provided subsections 12(3) and (4.1) ITA do not apply, such amount will be converted into CAN$ using the relevant spot rate at that time.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) prescribed interest on foreign currency PLOI translated at spot rate when loan made 194

23 May 2013 IFA Round Table Q. 6(e)

In respect of component (ii) of variable A in s. 17.1(1)(b), the correspondent asked:

Could the indirectly funded rule in s. 17.1(1)(b) be avoided through the use of cash damming techniques? For example, what if a CRIC sets up two bank accounts and uses account A to receive borrowings and fund business expenses and account B to receive business revenues and fund a PLOI, or alternatively, CRIC 1 uses its business revenues to fund a PLOI while CRIC 2 (a sister corporation, where there are no cross-shareholdings between CRIC 1 and CRIC 2 or inter-company debts), uses borrowings to fund its business expenses?


: It was intended that the application of s. 17.1(1)(b) would not be limited by the principle of "tracing," so that CRA would not concede that the proceeds of a debt obligation could not reasonably be considered to fund a PLOI simply because those proceeds were deposited into one account while the funds used to directly make the PLOI were withdrawn from another. It is CRA's general view that:

[I]t would be reasonable to expect that the proceeds from a borrowing had directly or indirectly funded, in whole or in part, a PLOI when a CRIC borrows money and, while the borrowing is outstanding, it makes a PLOI. Whereas, it is difficult to imagine circumstances in which it would be reasonable to consider that the borrowings of a sister Canco, where there are no cross shareholdings or inter-corporate debts, had directly or indirectly funded the PLOI of a CRIC.