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.
TEI Conference
December 7, 1999
Question XXIII.
SUBSECTION 15(2.3)
Assume the following facts. A subsidiary of a Canadian parent company acts as the "banker" or centralized financing arm for a large Canadian corporate group that includes multiple Canadian corporate taxpayers. Under the arrangement, the subsidiary accepts and deposits all cash of the corporate group and makes all payments required to be made by any corporation in the corporate group. Temporary cash reserves of the group are invested by the subsidiary in the ordinary course of its business in corporate and government debt instruments.
Would Revenue Canada confirm that subsection 15(2) does not apply to debt instruments held by the subsidiary even though the debt is issued by a non-resident company that is connected with the subsidiary's shareholder ? In answering the question, assume the investment is made by the financing subsidiary in the ordinary course of its business. In our view, subsection 15(2.3) prevents the application of subsection 15(2). Would Revenue Canada please confirm that view ?
CCRA's Position
The issue of whether subsection 15(2.3) of the Act applies in any particular case is ultimately a question of fact. More specifically, two factual determinations would have to be made, in the present case, in order to conclude that the loans made by the subsidiary were exempt from subsection 15(2) because of subsection 15(2.3), namely that the loans were "made in the ordinary course of the lender's ordinary business of lending money" and that, at the time the loans were made, bona fide arrangements were made for their repayment within a reasonable time. Additional information would be required before we could make either of these determinations.
In the circumstances where the financing subsidiary is not a resident of Canada and the non-resident borrower is not a foreign affiliate of the Canadian parent, GAAR may be an issue.
Author: Brian Bloom File: 993039 Date: November 22, 1999