Bifalgorithm post · Une erreur comptable peut-elle entraîner un impôt supplémentaire? · 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 (Une erreur comptable peut-elle entraîner un impôt supplémentaire? · CRA comments on a s. 17(1) inclusion under a s. 17(2) B2B loan and the partial…

Ideas in this flowchart

  • CRA’s proposed application of section 17 to Loans 1 and 2
  • Underlying corporate and lending arrangement
  • Canco wholly owns the Barbados subsidiary Barbco
  • Barbco owes Canco a non-interest-bearing Loan 1
  • Barbco 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 assumed causal connection
  • Loan 2 was made and permitted to remain outstanding because Canco made Loan 1 to Barbco
  • Section 17(1) would impute interest on a Deemed Loan equal in amount to Loan 2, in addition to interest imputed on Loan 1
  • CRA’s historical position on section 248(28)
  • Section 248(28) would not prevent the inclusion of interest under section 17 for Loan 2
  • Section 17 would not require a particular amount to be included in income more than once
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Deemed Loan

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Une erreur comptable peut-elle entraîner un impôt supplémentaire?

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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.\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."

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