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.
APFF - 1995
Question 4
Capital loss suffered by a taxpayer as a result of the disposition of a debt owed by a foreign affiliate
Under paragraph 40(2)(g) of the Income Tax Act, a loss suffered by a taxpayer as a result of the disposition of a debt is nil except where the debt was acquired for the purpose of gaining income from a business or a property. Under certain circumstances, Revenue Canada does not consider that a loss with respect to a loan by a shareholder of a corporation to a Canadian subsidiary of that corporation is deemed nil if the conditions set out in Interpretation Bulletin IT-239R2 are met. However, loans to foreign subsidiaries do not qualify from the same relief, despite rulings in favour of taxpayers in a number of decisions, including Edwin J. Byram v. Her Majesty the Queen (95 DTC 5069) (FC), which was appealed by the Department. Why does Revenue Canada maintain this position?
Answer by the Department of Revenue
The requirements set out in Interpretation Bulletin IT-239R2 with respect to the deductibility of capital losses resulting from loans to a Canadian corporation at less than reasonable rates are an administrative concession by the Department.
The Department did not appeal some decisions that were favourable to the taxpayers because of the special circumstances surrounding those decisions. As stated earlier, the Edwin J. Byram ruling was appealed.
However, the Department plans to reevaluate its position with regard to loans made to foreign subsidiaries in light of decisions that are handed down in cases currently before the courts.