I-3 - Taxation Act

Section 127.6 Disposition versions

2017-02-08

127.6. Where the conditions of the third paragraph are met in respect of a corporation resident in Canada in relation to an amount owing to the corporation (in this section referred to as the “debt”), the corporation shall include in computing its income for a taxation year the amount determined by the formula

A – B.

In the formula in the first paragraph,

(a)  A is the amount of interest that would be included in computing the corporation’s income for the year in respect of the debt if interest on the debt were computed at the prescribed rate for the period in the year during which the debt was outstanding; and

(b)  B is the aggregate of all amounts each of which is

i.  an amount included in computing the corporation’s income for the year as, on account of, in lieu of or in satisfaction of, interest in respect of the debt,

ii.  an amount received or receivable by the corporation from a trust that is included in computing the corporation’s income for the year or a subsequent year and that can reasonably be attributed to interest on the debt for the period in the year during which the debt was outstanding, or

iii.  an amount included in computing the corporation’s income for the year or a subsequent taxation year under section 580 that can reasonably be attributed to interest on an amount owing (in this section referred to as the “original debt”)—or if the amount of the original debt exceeds the amount of the debt, a portion of the original debt that is equal to the amount of the debt—for the period in the year during which the debt was outstanding if

(1)  without the existence of the original debt, section 127.7 would not have deemed the debt to be owed by a person not resident in Canada and referred to in subparagraph a of the third paragraph,

(2)  the original debt was owed by a person not resident in Canada or a partnership each member of which is such a person, and

(3)  where section 127.3.2 applies in respect of the original debt, an amount determined under subparagraph a or b of the first paragraph of that section in respect of the original debt is an amount referred to in paragraph a of section 127.7 and, because of the amount referred to in that paragraph a, the debt is deemed to be owed by the person not resident in Canada and referred to in subparagraph a of the third paragraph, and the original debt was owing by an intermediate lender to an initial lender or by an intended borrower to an intermediate lender, within the meaning assigned to those expressions by the second paragraph of section 127.3.2.

The conditions to which the first paragraph refers in relation to a debt contracted with a corporation resident in Canada are met if at any time in a taxation year of the corporation,

(a)  a person not resident in Canada owes the amount to the corporation;

(b)  the amount has been or remains outstanding for more than a year; and

(c)  the amount that would be determined under subparagraph b of the second paragraph, if the first and second paragraphs of this section applied, for the year in respect of a debt is less than the amount of interest that would be included in computing the corporation’s income for the year in respect of the debt if that interest were computed at a reasonable rate for the period in the year during which the amount was outstanding.

2001, c. 53, s. 41; 2017, c. 1, s. 91.

2006-03-01

127.6. Where, at any time in a taxation year of a corporation resident in Canada, a person not resident in Canada owes an amount to the corporation, that amount has been or remains outstanding for more than a year and the amount determined under the second paragraph for the year is less than the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at a reasonable rate for the period in the year during which the amount was owing, the corporation shall include an amount in computing its income for the year equal to the amount by which the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at the prescribed rate for the period in the year during which the amount was owing exceeds the amount determined under the second paragraph.

The amount to which the first paragraph refers is equal to the aggregate of

(a)  an amount included in computing the corporation’s income for the year as, on account of, in lieu of or in satisfaction of, interest in respect of the amount owing;

(b)  an amount received or receivable by the corporation from a trust that is included in computing the corporation’s income for the year or a subsequent year and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing; and

(c)  an amount that is included in computing the corporation’s income for the year or a subsequent year under section 580 and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing.

2001, c. 53, s. 41.