Marginal note:Deemed interest income — sections 15 and 212.3

• 17.1 (1) Subject to subsection (2), if — at any time in a taxation year of a corporation resident in Canada (in this section referred to as the “CRIC”) or in a fiscal period of a qualifying Canadian partnership in respect of the CRIC — a non-resident corporation, or a partnership of which the non-resident corporation is a member, owes an amount to the CRIC or the qualifying Canadian partnership and the amount owing is a pertinent loan or indebtedness (as defined in subsection 15(2.11) or 212.3(11)),

  • (a) section 17 does not apply in respect of the amount owing; and

  • (b) the amount, if any, determined by the following formula is to be included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be:

    A – B

    where

    A

    is the amount that is the greater of

    • (i) the amount of interest that would be included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be, in respect of the amount owing for the particular period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness if that interest were computed at the prescribed rate for the particular period, and

    • (ii) the total of all amounts of interest payable in respect of the period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness, by the CRIC, the qualifying Canadian partnership, a person resident in Canada with which the CRIC did not, at the time the amount owing arose, deal at arm’s length or a partnership of which the CRIC or the person is a member, in respect of a debt obligation — entered into as part of a series of transactions or events that includes the transaction by which the amount owing arose — to the extent that the proceeds of the debt obligation can reasonably be considered to have directly or indirectly funded, in whole or in part, the amount owing, and

    B

    is an amount included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be, as, on account of, in lieu of or in satisfaction of, interest in respect of the amount owing for the period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness.

• Marginal note:Acquisition of control

  (2) If at any time a parent referred to in section 212.3 acquires control of a CRIC and the CRIC was not controlled by a non-resident corporation immediately before that time, no amount is to be included under subsection (1) in computing the income of the CRIC in respect of a pertinent loan or indebtedness (as defined in subsection 212.3(11)) for the period that begins at that time and ends on the day that is 180 days after that time.

• Marginal note:Tax treaties

  (3) A particular loan or indebtedness that would, in the absence of this subsection, be a pertinent loan or indebtedness is deemed not to be a pertinent loan or indebtedness if, because of a provision of a tax treaty, the amount included in computing the income of the CRIC for any taxation year or of the qualifying Canadian partnership for any fiscal period, as the case may be, in respect of the particular loan or indebtedness is less than it would be if no tax treaty applied.

• (iii) a pooled registered pension plan or registered pension plan;

• Marginal note:Limitation — deduction of interest by certain corporations

  (4) Notwithstanding any other provision of this Act (other than subsection (8)), in computing the income for a taxation year of a corporation resident in Canada from a business or property, no deduction shall be made in respect of that proportion of any amount otherwise deductible in computing its income for the year in respect of interest paid or payable by it on outstanding debts to specified non-residents that

• (ii) 1.5 times the total of

• (B) the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose in connection with an investment, as defined in subsection 212.3(10), to which subsection 212.3(2) applies) at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and

• Marginal note:Definitions

  (5) Notwithstanding any other provision of this Act (other than subsection (5.1)), in this subsection and subsections (4) to (7),

“specified proportion”

« proportion déterminée »

“specified proportion”, of a member of a partnership for a fiscal period of the partnership, means the proportion that the member’s share of the total income or loss of the partnership for the partnership’s fiscal period is of the partnership’s total income or loss for that period and, for the purposes of this definition, where that income or loss for a period is nil, that proportion shall be computed as if the partnership had income for that period in the amount of $1,000,000;

• Marginal note:Partnership debts

  (7) For the purposes of this subsection, paragraph (4)(a), subsections (5) to (6) and paragraph 12(1)(l.1), each member of a partnership at any time is deemed at that time

  • (a) to owe the portion (in this subsection and paragraph 12(1)(l.1) referred to as the “debt amount”) of each debt or other obligation to pay an amount of the partnership that is equal to

    • (i) the member’s specified proportion for the last fiscal period, if any, of the partnership ending

      • (A) at or before the end of the taxation year referred to in subsection (4), and

      • (B) at a time when the member is a member of the partnership, and

    • (ii) if the member does not have a specified proportion described in subparagraph (i), the proportion that

      • (A) the fair market value of the member’s interest in the partnership at that time

      is of

      • (B) the fair market value of all interests in the partnership at that time;

  • (b) to owe the debt amount to the person to whom the partnership owes the debt or other obligation to pay an amount; and

  • (c) to have paid interest on the debt amount that is deductible in computing the member’s income to the extent that an amount in respect of interest paid or payable on the debt amount by the partnership is deductible in computing the partnership’s income.

• Marginal note:Exception — foreign accrual property income

  (8) An amount in respect of interest paid or payable to a controlled foreign affiliate of a corporation resident in Canada that would otherwise not be deductible by the corporation for a taxation year because of subsection (4) may be deducted to the extent that an amount included under subsection 91(1) in computing the corporation’s income for the year or a subsequent year can reasonably be considered to be in respect of the interest.

• (c) making a contribution to a deferred profit sharing plan, a pooled registered pension plan or a registered pension plan, other than

• Marginal note:Employer’s contributions to RPP or PRPP

  (q) such amount in respect of employer contributions to registered pension plans or pooled registered pension plans as is permitted under subsection 147.2(1) or 147.5(10);

• (a) that is or is issued pursuant to a pooled registered pension plan, a registered pension plan, a registered retirement savings plan, an income-averaging annuity contract or a deferred profit sharing plan;