Bifalgorithm post · Fuscalite · CRA comments on a s. 17(1) inclusion under a s. 17(2) B2B loan and the partially offsetting FAPI deduction under s. 17(1) – B(c)

Deemed Loan

Deemed Loan (Fuscalite · CRA comments on a s. 17(1) inclusion under a s. 17(2) B2B loan and the partially offsetting FAPI deduction under s. 17(1) – B(c)) — "C…

Ideas in this flowchart

  • CRA’s treatment of the intercompany and U.S. loans under section 17(1)
  • Canco wholly owns the Barbados subsidiary Barbco.
  • Barbco has a non-interest-bearing Loan 1 owing to Canco.
  • Barbco also earns interest on term deposits.
  • Barbco holds Loan 2 owing by the arm’s length U.S. borrower USco.
  • Loan 2 has the same principal amount as Loan 1 and has been outstanding for more than one year.
  • The interest rate on Loan 2 is less than a reasonable rate under section 17(1.1)(c).
  • CRA’s assumption is that Loan 2 was made and kept outstanding because Canco made Loan 1 to Barbco.
  • Section 17(1) would impute interest on a Deemed Loan equal in amount to Loan 2.
  • Interest would also be imputed on Loan 1.
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Deemed Loan

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"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."

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