Feb 11, 1991
TORONTO DISTRICT OFFICE Rulings Directorate C.F. Figueira Jim Wilson Chief, Audit Review (613) 957-2120
Attention: G. Cappella
7-903487
24(1)
Losses Arising from Guaranteeing a Loan of a U.S. Company
This is in response to your memorandum dated November 28, 1990. You requested our comments whether losses arising from loan guarantees given by the above corporation on behalf of U.S. corporations which it controls, for no or inadequate consideration, would be deemed to be nil by subparagraph 40(2)(g)(ii) of the Income Tax Act (the "Act") on the basis that the guarantees were not given for the purpose of gaining or producing income.
23
21(1)(b)
000263
Accordingly in our view
24(1)
The exception in paragraph 6 of IT-239R2 and paragraph 7 was established to address specific tax policy concerns. The policy to apply strictly to loans utilized by Canadian corporations or its Canadian subsidiaries is clarified in the Notice of Ways and Means Motion concerning the deductibility of interest (copy attached). In our view the administrative policy should not be extended to allow a loss with respect to loans made or guaranteed by a Canadian company to its foreign subsidiary.
for Director Reorganization Non-Resident Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
000264