Deemed Loan

"Canco wholly owns a Barbados subsidiary (“Barbco”), which has a non-interest-bearing loan (\"Loan 1\") owing to Canco. In addition to earning interest on term deposits, Barbco also holds a loan (\"Loan 2\") owing to it by an arm's length U.S. borrower (USco) in the same principal amount as for Loan 1 and which, like Loan 1, has been outstanding for more than one year. The interest rate charged on Loan 2 is less than a reasonable rate within the meaning of s. 17(1.1)(c).\n\nCRA indicated that, assuming it was reasonable to conclude that Loan 2 was made by Barbco to USco and permitted to remain outstanding because Canco had made Loan 1 to Barbco, s. 17(1) would impute interest on a deemed loan (the “Deemed Loan”) equal in amount to Loan 2, in addition to imputing interest on Loan 1.\n\nCRA further noted its historical position that, in circumstances such as this, s. 248(28) would not affect the inclusion of interest under s. 17 in respect of Loan 2, because s. 17 would not require a particular amount to be included in income more than once."