5-9515
Dear Sirs:
Re: Application of paragraph 214(3)(a) of the Income Tax Act (the "Act")
We are writing in response to your letter dated January 29, 1990 in which you requested our interpretation on the application of paragraph 214(3)(a) of the Act to a loan from a Canadian resident corporation to a non-resident corporation, We apologize for the delay in responding to your request.
You are of the opinion that the condition "if Part I were applicable" is not satisfied therefore paragraph 214(3)(a) of the Act would not apply to a loan to a non-resident corporation.
Your interpretation of the condition :if part I were applicable: is read on the assumption that the taxpayer (non-resident corporation) would be loaded at as a resident corporation, since subsection 15(2) of the Act does not apply to a Canadian resident corporation then part I of the Act would not be applicable therefore exempting the loan from the application of paragraph 214(3)(a) of the Act.
It is our view that paragraph 214(3)(a) would apply to deem the loan proceeds to be a dividend upon which an income tax under subsection 212(2) is applicable. Our position is clearly stated in paragraph 9 of Interpretation Bulletin IT-119R3. We base this interpretation on the fact that if non-residents were subject to tax in Canada under subsection 2(1) of the Act then subsection 15(2) would apply to the loan and, therefore, satisfy the condition set forth in paragraph 214 (3)(A) of the Act. We do not agree with your view that the phrase "if Part I were applicable" as used in paragraph 214(3)(a) should be read on the assumption that the non-resident corporation was a resident of Canada. In your particular situation, the non-resident corporation satisfies the condition present within paragraph 214(3)(a) in that it would be subject to the application of subsection 15(2) of the Act "if Part I were applicable" to a non-resident. The foregoing comments represent our general views with respect to the subject matter of your letter.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch