| 24(1) | 902031 |
| M. Vallée | |
| (613) 957-2088 |
19(1)
November 19, 1990
Dear Sirs:
Re: Subsection 212(1) of the Income Tax Act (the "Act")
This is in reply to your letter, dated August 14, 1990, whereby you requested a technical interpretation regarding the expression "pays or credits" in subsection 212(1) of the Act as it applies to interest payable to a non-resident by a person resident in Canada. In particular, you asked the question: "Is the interest expense paid or credited when it is accrued or when cash is available, particularly for a Canadian company with losses from operations?"
As stated in paragraph 5 of Information Circular 77-16R3, "Non-Resident Income Tax", we consider that an amount is paid or credited, for purposes of subsection 212(1) of the Act, when a resident of Canada has set aside and made unconditionally available to the non-resident creditor an amount due to the non-resident. We do not consider that funds have been set aside and made unconditionally available to a non-resident, for the purpose of subsection 212(1) of the Act, by virtue only of the fact that the interest has been accrued in the books of account of the Canadian debtor, provided that the Canadian debtor does not also set aside funds to be used to satisfy the accrued interest. However, we are of the opinion that interest could be considered to have been paid or credited to a non-resident, even in the absence of any available funds if, for instance, the accrued interest has been offset against a debt owed by the non-resident to the Canadian resident.
The foregoing response is an opinion provided in accordance with the practice described in paragraph 21 of Information Circular 70-6R2 and is not binding on the Department.
Yours truly,
for the DirectorReorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch