Interest paid in 2011 and 2012 by a foreign affiliate (USOpco) of Canco to an LLC that was held by Canco through a subsidiary US partnership (USP) of Canco could only be recharacterized as active business income for purposes of being excluded from the FAPI computation of USP if USP was deemed by ss. 93.1(5) and (6) to have a qualifying interest (QI) in USOpco. Ss. 93.1(5) and (6) could only apply to such interest if, pursuant to the coming-into-force (CIF) provision for ss. 93.1(5) and (6) (which otherwise applied only to the 2013 and subsequent taxation years), it could be considered that the taxpayer (USP) had “elected[ed] in writing” and timely “file[d] the election with the Minister” to have ss. 93.1(5) and (6) apply to those earlier years. In rejecting Canco’s position that USP (which otherwise never made the election), should be treated as having made the election by virtue of Canco not reporting any FAPI of USP from the interest, the Directorate indicated that:
- USP’s filing position did not constitute notice that the election was made (which would usually have been done by attaching a written letter to the return), as the CIF provision clearly required that the election be made in writing and did not require it to be made “in the taxpayer’s return” for the year.
- No extension for making the election could be allowed under s. 220(3.2), as the CIF provision was not listed in Reg. 600 (there being no ability of the Minister to extend s. 220(3.2) to elections other than those so listed).
- “[C]onsistent with the previously noted longstanding position of the CRA that subsection 220(2.1) cannot override subsection 220(3.2),” it is “Rulings’ view that allowing subsection 220(2.1) to waive a taxpayer’s requirement to file an election not listed in Regulation 600 would negate the specific intention of Parliament in limiting late elections to only those that are prescribed in section 600 of the Regulations” – and, in any event, the CIF provision was not a provision of the Act itself, as required by s. 220(2.1).
Accordingly, ss. 93.1(5) and (6) did not apply in respect of the interest payments.