Is an individual who makes an interest-free loan to a non-resident corporation with which the individual does not deal at arm's length required to include in income an amount equal to the interest that the individual would have received if an arm's length rate had applied in accordance with s. 247?
After noting that it “does not generally comment on proposed legislation” (i.e., draft s. 247(2.1)) and that “[e]xcept in situations of indirect arrangements or loans referred to in subsection 17(2), section 17 generally does not apply to an amount that is owed to an individual,” CRA stated:
[W]here a taxpayer (including an individual) and a non-resident person with whom the taxpayer does not deal at arm's length enter into a transaction and the terms and conditions between the parties differ from those that would have been entered into between arm's length persons, subsection 247(2) could apply. In such a case, the amounts that would be determined for the purposes of the Income Tax Act in respect of the taxpayer will generally be adjusted to reflect the value or nature of the amounts that would have been determined if the terms and conditions of the transaction had been those that would have been entered into between arm's length persons.
In the scenario presented, we believe that subsection 247(2) would apply and that the individual would be required to include in income an amount of interest equivalent to the adjustment described above, regardless of the proposed addition of subsection 247(2.1).