17 October 1991 Income Tax Severed Letter

53

                      Guarantee by Subsidiary of Foreign
                             Parent's Obligations

If a Canadian subsidiary of a foreign parent guarantees the loan obligations of the parent:

(a) Will the Department impute a benefit to the parent under subsection 15(1) such that subsection 214(3) will apply?

(b) If the answer to (a) is yes, what will be the quantum of the benefit?

(c) Will the Department seek to impute income to the subsidiary under subsection 69(3) of the Act?

Department's Position

If a Canadian subsidiary of a foreign parent guarantees the loan obligations of its parent:

(a) Subsection 15(1) would apply to any benefit conferred on the parent if Part I of the Act was applicable to non-residents with the result that subsection 214(3) of the Act will apply to the benefit.

(b) The amount of the benefit is a question of fact which can only be decided on a case by case basis.

(c) Subsection 69(3) will apply to deem the amount that would have been reasonable in the circumstances, if the corporations had been dealing at arm's length, to have been received or receivable by the Canadian subsidiary.

Prepared by R. McMechan 17/10/91

000161