22 May 2014 IFA Roundtable, 2014-0526751C6 - Adjusted cost base of foreign affiliate shares -- summary under Subsection 90(6)

  • On September 1, 2011 a foreign affiliate (FA) of a corporation resident in Canada (Canco) made a loan to a "specified debtor" in respect of Canco. If Canco sells the shares of the FA such that FA ceases to be a foreign affiliate of Canco, before September 1, 2013, and the loan is outstanding on September 1, 2013, will Canco be deemed to have an income inclusion pursuant to proposed s. 90(6) on September 1, 2011?
  • Alternatively, if prior to August 19, 2011 FA) made a loan to a "specified debtor" in respect of Canco, and Canco sells the shares of the FA before August 19, 2014, will Canco have an income inclusion per s. 90(6) on August 20, 2014, if the loan remains outstanding on August 20, 2016?
  • Alternatively, if Canco sells the shares of FA after August 20, 2014 but the loan remains outstanding on August 20, 2016, will s. 90(6) apply?
Response

: Respecting the first case, proposed s. 90(6) provides that the relationships between Canco, FA and the debtor are to be tested at the time the loan is received or the debt incurred (in this case, September 1, 2011) - so that, if the loan is not repaid by September 1, 2013 (even if FA is then no longer a FA of Canco), the exception in proposed s. 90(8)(a) will not be available so that Canco will have an income inclusion on September 1, 2011. In the other case, proposed ss. 90(6) to (15) are to be applied as if the loan was received or indebtedness was incurred on August 20, 2014. If FA is not a FA of Canco at that time (e.g., the FA shares were sold before then), proposed s. 90(6) will not apply to Canco. However, if the sale of the shares of FA takes place on or after August 20, 2014 and the loan remains outstanding on August 20, 2016, since proposed s. 90(6) provides that the relationships between Canco, FA and the debtor are to be tested at the time the loan is received or the debt incurred (in this case, August 20, 2014), it will apply, so that Canco will have an income inclusion on August 20, 2014, notwithstanding that those relationships are no longer in place on August 20, 2016. Note that Canco will get a deduction pursuant to proposed s. 90(14) when the indebtedness is repaid.

Topics and taglines
Topic
Income Tax Act - s. 90(6)
Tagline
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
316790
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
346344
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