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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
DRAFT
Revenue Canada Round Table
Canadian Petroleum Tax Society
June 7, 1995
Question #4
SUBSECTION 95(2)(a)(ii) - BACK-TO-BACK LOAN
Canco has, throughout the year, three wholly-owned foreign affiliates, Aco, Bco, and Cco. Cco carries on an active business in a foreign country. Aco makes an interest bearing loan (the "First Loan") to Bco which uses the funds to make an interest bearing loan (the "Second Loan") to Cco. Cco uses the borrowed funds in its active business. The interest paid by Cco on the Second Loan is deductible in computing its earnings from the active business computed in accordance with the income tax law of the country in which Cco is resident. Subject to the application of proposed subparagraph 95(2)(a)(ii) set out in Bill C-70, the interest earned by Aco on the First Loan and Bco on the Second Loan would be included in computing income from property.
Will the income of Aco which is derived from interest paid on the First Loan be included in computing its income from an active business pursuant to proposed subparagraph 95(2)(a)(ii)?
Department's Position
Yes, the income of Aco which is derived from interest paid on the First Loan would be included in computing its income from an active business pursuant to proposed clause 95(2)(a)(ii)(A). Proposed clause 95(2)(a)(ii)(A) would apply to the income of Bco derived from interest paid by Cco on the Second Loan and the interest paid by Bco on the First Loan would be deducted by Bco in the determining the amount included in its earnings from an active business under subparagraph 5907(1)(a)(ii) of the Regulations. Therefore the interest paid on the First Loan by Bco would be considered "deductible...in computing the amounts prescribed to be its earnings or loss from an active business..." for the purposes of the post-amble of proposed clause 95(2)(a)(ii)(A).
Olli Laurikainen
951161
May 8, 1995
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