Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Marginal note:Loan to wholly-owned subsidiary

• 218 (1) For the purposes of this Act, where

  • (a) a non-resident corporation (in this section referred to as the “parent corporation”) is indebted to

    • (i) a person resident in Canada, or

    • (ii) a non-resident insurance corporation carrying on business in Canada,

    (in this section referred to as the “creditor”) under an arrangement whereby the parent corporation is required to pay interest in Canadian currency, and

  • (b) the parent corporation has lent the money in respect of which it is so indebted, or a part thereof, to a subsidiary wholly-owned corporation resident in Canada whose principal business is the making of loans (in this section referred to as the “subsidiary corporation”) under an arrangement whereby the subsidiary corporation is required to repay the loan to the parent corporation with interest at the same rate as is payable by the parent corporation to the creditor,

  the amount so lent by the parent corporation to the subsidiary corporation shall be deemed to have been borrowed by the parent corporation as agent of the subsidiary corporation and interest paid by the subsidiary corporation to the parent corporation that has been paid by the parent corporation to the creditor shall be deemed to have been paid by the subsidiary corporation to the creditor and not by the subsidiary corporation to the parent corporation or by the parent corporation to the creditor.

• Marginal note:Idem

  (2) Where a parent corporation has lent money to a subsidiary wholly-owned corporation resident in Canada whose principal business is not the making of loans and the money has been lent by that corporation to a subsidiary corporation wholly-owned by it and resident in Canada whose principal business is the making of loans, the loan by the parent corporation shall be deemed, for the purpose of subsection 218(1), to have been a loan to a subsidiary wholly-owned corporation whose principal business is the making of loans.

• Marginal note:Election

  (3) This section does not apply in respect of any payment of interest unless the parent corporation and the creditor have executed, and filed with the Minister, an election in prescribed form.

• Marginal note:Application of election

  (4) An election filed under subsection 218(3) does not apply in respect of any payment of interest made more than 12 months before the date on which the election was filed with the Minister.