A foreign subsidiary of Canco (Opco) in turn wholly-owned a non-resident “Finco,” which made an interest-free loan to a non-resident sister of Canco (Foreign Sub), that was repaid within two years. The benefit imputed under s. 80.4(2) from the absence of interest was, in turn, deemed by s. 15(9) to be a benefit conferred on “a” shareholder, which CRA interpreted as being Foreign Sub. S. 214(3)(a) then deemed this benefit to be paid “to the taxpayer as a dividend from a corporation resident in Canada.” CRA considered Foreign Sub to be the “taxpayer” and effectively treated Finco as the deemed corporation resident in Canada, so that Finco was liable under s. 215(1) for failure to “withhold” and remit Part XIII tax on the imputed benefit.
CRA then noted that this tax liability of Finco could attach to dividends that flowed up the chain to Canco, and then stated:
Finally, the Minister could potentially apply subsection 227.1(1) to collect the tax from the directors of Finco, unless the exceptions under subsections 227.1(2) or 227.1(3) apply.