Re: Transfer of Part VI.1 Tax
Under subsection 191.3(1) of the Income Tax Act (the "Act") a corporation may agree to transfer all or a portion of its Part VI.I tax liability to a related corporation.
In some situations this will not result in an increased overall tax liability to the transferee corporation because the Part VI.I liability will be offset by the tax saving arising from the corresponding deduction, under paragraph 110(1)(k) of the Act. However, in other situations, depending on the transferee corporation's tax rate, the tax saving resulting from the 110(1)(k) deduction may not fully offset the Part VI.I liability. Accordingly, to the extent that the transfer is made after the due date for taxes of the transferee corporation (as set out in paragraph 157(1)(b) of the Act) and results in a balance owing, interest is payable by the transferee corporation on the outstanding amount.
Is relief available with respect to interest arising in this situation?
Department's Position
The law makes it clear that a taxpayer is required to pay interest on the amount of taxes arising under Part I and VI.I of the Act which are unpaid on their due date. We have advised the Department of Finance of the situation described in the question, however, so that they can consider whether an amendment is appropriate.