Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Where a single written communication is used by a taxpayer to elect under subsection 15(2.11) or 212.3(11) of the Act in respect of various amounts owing, has the taxpayer made one election or one election per amount owing? 2. Whether partnerships may file an election pursuant to subsection 15(2.11) or 212.3(11) of the Act, and if so, does each member of the partnership have to file the election, or can the partnership file the election on behalf of all the partners?
Position: 1. One election per amount owing. 2. It would not be the qualifying Canadian partnership in respect of the foreign controlled CRIC that would file the election pursuant to subsection 15(2.11) of the Act. Rather, a joint election would be filed by all the members of the qualifying Canadian partnership and a non-resident corporation that controls the CRIC; A partnership would not file a subsection 212.3(11) PLOI election with respect to an amount owing. Rather, a joint election would be filed by the CRIC and the non-resident corporation which controlled the CRIC, and the election would be in respect of the amount owing deemed to be owing to the CRIC in proportion to the FMV of the CRIC's direct and indirect interests in the partnership.
Reasons: 1. Notwithstanding that a taxpayer may prepare and file a single written communication containing a PLOI election for various particular amounts owing, that single written communication would constitute a unique election for each particular amount owing described therein. 2. Subparagraph 15(2.11)(d)(ii) of the Act; Paragraph 212.3(25)(a) of the Act.
June 18, 2014
HEADQUARTERS HEADQUARTERS
International Advisory Services Section Income Tax Rulings
International and Large Business Directorate Directorate
Attention: Paul Oatway, CGA 2014-053454
PLOI Elections pursuant to subsections 15(2.11) and 212.3(11) of the Act
We are writing in response to your emails dated June 4th and 5th of 2014 in which you asked for our views regarding certain aspects of the elections provided in subsections 15(2.11) and 212.3(11) of the Income Tax Act (the "Act") regarding pertinent loans or indebtedness ("PLOIs"). Specifically, you requested our views as to:
1. whether a taxpayer has made one election, or one election per amount owing, when a single written communication is used by the taxpayer to elect under subsection 15(2.11) or 212.3(11) of the Act in respect of various amounts owing; and
2. whether partnerships may file an election pursuant to subsection 15(2.11) or 212.3(11) of the Act, and if so, does each member of the partnership have to file the election, or can the partnership file the election on behalf of all the partners?
It is our understanding that your questions relate to one or more queries you recently received from personnel within the Assessment and Benefit Services Branch.
One election per amount owing
At the IFA Canada International Tax Seminar 2013 (our document 2013-0483751C6) we made the comments that:
"In order for a particular amount owing to be a PLOI, pursuant to either subsection 15(2.11) or 212.3(11), an election in respect of the amount owing must be filed with the Minister of Revenue on or before the filing-due date of the CRIC for the year in which the amount became owing (or, for the purposes of subparagraph15(2.11)(d)(ii), on or before the filing-due date of the CRIC for its taxation year in which ends the fiscal period of the qualifying Canadian partnership in which the amount became owing).
If the filing due date is the same for electing PLOI treatment for more than one amount owing (i.e., more than one amount owing became owing in a given taxation year of the CRIC or, for the purposes of subparagraph 15(2.1)(d)(ii), of the qualifying Canadian partnership), a single written communication may be prepared and filed with the Minister which contains an election for each particular amount owing. However, in order for a PLOI election to be valid, in our view, it must refer to a specific amount owing."
Notwithstanding that a taxpayer may prepare and file a single written communication containing a PLOI election for various particular amounts owing, that single written communication would, in our view, constitute a unique election for each particular amount owing described therein. Meaning, if a single written communication is used by a taxpayer to elect under subsection 15(2.11) or 212.3(11) of the Act in respect of various particular amounts owing, the taxpayer has made one election per particular amount owing.
Partnerships and subsection 15(2.11) of the Act
As noted in subsection 15(2.11) of the Act, for the purposes of subsection 15(2) and subject to subsection 17.1(3), a PLOI election may be made with respect to a loan received, or an indebtedness incurred that is, inter alia, an amount owing to a corporation resident in Canada that is controlled by a non-resident corporation (a foreign controlled CRIC), or to a qualifying Canadian partnership (within the meaning assigned to that term in paragraph 15(2.14)(a) of the Act) in respect of the foreign controlled CRIC. It is further noted in subparagraph 15(2.11)(d)(ii) of the Act that in the case of an amount owing to a qualifying Canadian partnership in respect of the foreign controlled CRIC, for that amount owing to be a PLOI, all the members of the qualifying Canadian partnership and a non-resident corporation that controls the CRIC must jointly elect in writing under that subparagraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC for its taxation year in which ends the fiscal period of the qualifying Canadian partnership that includes the time the loan was received or the indebtedness was incurred.
As such, in response to your second question above, it would not be the qualifying Canadian partnership in respect of the foreign controlled CRIC that would file the election pursuant to subsection 15(2.11) of the Act. Rather, a joint election would be filed by all the members of the qualifying Canadian partnership and a non-resident corporation that controls the CRIC. Furthermore, where more than one foreign controlled CRIC is a member of the qualifying Canadian partnership, in our view, the requirements of subparagraph 15(2.11)(d)(ii) of the Act would be met if the joint election were filed with the Minister on or before the latest of the filing-due dates of those CRICs for their taxation years in which ends the fiscal period of the qualifying Canadian partnership that includes the time the loan was received or the indebtedness was incurred. We are of this view because the requirements in subparagraph 15(2.11)(d)(ii) of the Act impact whether a loan or indebtedness of a person or partnership described in paragraphs 15(2)(a) to (c) of the Act to a qualifying Canadian partnership will be a PLOI. Where more than one foreign controlled CRIC is a member of a qualifying Canadian partnership, any such foreign controlled CRIC can be read to be "the CRIC" referred to in subparagraph 15(2.11)(d)(ii) while others would simply be viewed as other members of the partnership. As a result, it is open for the taxpayers to choose which member will be "the CRIC" referred to in subparagraph 15(2.11)(d)(ii) of the Act. Therefore, the election will be on time so long as it is filed on or before the latest of the filing-due dates of all the foreign controlled CRICs that are members of the partnership.
Partnerships and subsection 212.3(11) of the Act
As noted in subsection 212.3(11) of the Act, for the purposes of subsection 212.3(10) and subject to subsection 17.1(3), a PLOI election may be made with respect to an amount owing that is, inter alia, an amount owing to a foreign controlled CRIC. Regarding partnerships, subsection 212.3(25) of the Act contains "look-through" rules for the purposes of, inter alia, section 212.3 and subsection 17.1(1) as it applies in respect of PLOIs referred to in subsection 212.3(11). For those purposes, and specific to your query, paragraph 212.3(25)(a) of the Act deems each member of a partnership to have entered into any transaction entered into by the partnership itself, in proportion to the fair market value (the "FMV") of the member's direct and indirect (i.e., held through other partnerships) interests in the partnership. For example, where a foreign controlled CRIC is a member of a partnership and that partnership enters into a transaction resulting in an amount owing from a subject corporation (within the meaning assigned to that term in subsection 212.3(1) of the Act) to the partnership, the CRIC is deemed to enter into the partnership's transaction in proportion to the FMV of the CRIC's direct and indirect interests in the partnership. This would generally result in the CRIC being considered to have made an investment in the subject corporation as described in paragraph 212.3(10)(c) of the Act unless one of exceptions in subparagraphs (i) or (ii) applied.
As such, in response to your second question above, a partnership would not file a subsection 212.3(11) PLOI election with respect to an amount owing. Rather, a joint election would be filed by the CRIC and the non-resident corporation which controlled the CRIC, and the election would be in respect of the amount owing deemed to be owing to the CRIC in proportion to the FMV of the CRIC's direct and indirect interests in the partnership.
For your information a copy of this memorandum may be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. Such a severed copy would also be distributed to the commercial tax publishers for inclusion in their databases.
Lori M Carruthers CPA, CA
for Director
International Section III
International Division
Income Tax Rulings Directorate
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