Assuming compound interest does not accrue on unpaid simple interest owing by a Canadian corporation to a non-resident creditor for which an agreement under s. 78(1)(b)(ii) was made so as to deem the amount of that simple interest to be a loan, is that deemed loan considered to be included in “outstanding debts to specified non-residents” as defined in s. 18(5)?
CRA responded: no.
Where compound interest does accrue on unpaid simple interest and s. 78(1)(b)(ii) deems the simple interest to be a loan, is that deemed loan considered to be an outstanding debt to a specified non-resident only when the compound interest has been paid?
CRA responded that generally, where s. 78(1)(b)(ii) deems simple interest to be a loan, the amount of the deemed loan would not be considered to be an outstanding debt to a specified non-resident for the purposes of ss. 18(4) and (5) until the compound interest is paid and thereby becomes deductible under s. 20(1)(d).