18 January 1990 Income Tax Severed Letter AC592435 - Shareholder Debt - Repayment a Series of Other Repayments

5-9243
                                                  J.D. Jones
                                                  (613) 957-2104

Dear Sirs:

Re: Paragraph 15(2)(b) of the Income Tax Act (the "Act")

This is in reply to your letter of December 12, 1989, wherein you requested the Department confirm a previous view expressed with respect to the application of paragraph 15(2)(B) of the Act to trade accounts receivable.

Specifically, you have asked whether trade accounts receivable arising from sales of a subsidiary corporation to its parent corporation and the repayment thereof by the parent corporation would constitute a series of other transactions and repayments within the meaning of paragraph 15(2)(b) of the Act.

We advise that it is our view that the creation of each such account receivable arising from the sale of the subsidiary corporation's goods to, and the repayment thereof by, the parent corporation should be regarded as separate distinct transactions and not part of a series of other transactions and repayments. It is our opinion that subsection 15(2) of the Act would not apply to such indebtedness provided that each such receivable is settled within the time limit set out in paragraph 15(2)(b) of the Act. In this regard, we would be prepared to allow a subsidiary corporation to apply repayments to its oldest outstanding trade account receivable from its parent corporation.

We trust our comments are of assistance to you.

Yours truly,

P.D. Fuoco for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch