advance

The Agency indicated that “a balance of sale is a debt that does not have the character of a loan or advance within the meaning of paragraph 181.2(4)(b)” but that “a balance of sale can be a debt described in paragraph 181.2(4)(c) if it is evidenced by a bond, note, mortgage or similar instrument of another corporation, other than a financial institution.”

An employer was required to withhold pursuant to s. 153(1) on fixed automobile allowance paid monthly even though, at the end of the year, it included in the T4 for the affected employee, the amount by which this total allowance exceeded the amount that the employee should have received based on the kilometres driven for business purposes. The sums paid could not constitute advances, as the employees were not obligated to repay the excess over the business kilometerage to the employer.

Customers of the corporation paid for services in advance, which the corporation showed as a liability on its balance sheet but deducted as a reserve in computing its income pursuant to s. 20(6). After finding that such amounts were not a reserve described in s. 181.2(3)(c), and in finding that they were includible in taxable capital pursuant to s. 181.2(3)(b) as “advances,” the Directorate stated:

A factoring company advances sums to Corporation A at a discount to the face value of the discounted receivables, and then applies the amounts collected to reduce the advance amounts.

Quebec and Ontario travel agents were required by provincial legislation to hold funds collected from clients for services to be rendered to them in a trust account, and also, in their year end balance sheets, reported the current balances in the trust accounts as assets and also as deferred-revenue liabilities.

An employer is considering changing its payroll system to a payment-in-arrears system, so that employees will be paid for work that was done two weeks previously. The employer will pay existing employees a one-time transition payment (TP), at the date of conversion, instead of having a gap in pay. However, upon termination of employment, the employee generally would be required to make a payment to the employer (the employer may choose to take the money from a payment being made to the employee).

Where a taxable Canadian corporation makes a non-interest bearing loan to a controlled foreign affiliate (CFA 1) which, in turn, uses the proceeds to acquire the debt (the "Debt") of another CFA (CFA 2) from a non-arm's length Canadian corporation. CRA found that s. 17(8)(a)(ii) was not available as the Debt would not be considered to be a loan to the second CFA.