Intercompany Loans Tax Implications Canada

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CRA can audit or review intercompany loans and determine that they are not bona fide loans, and as such, the loan is reassessed as income to the debtor. This reassessment can have very significant financial consequences and may include penalties and interest.…

Cross Border Transactions: Part 1 - Intercompany Loans. This article is the first in a series highlighting the Canadian tax implications of transactions between Canadian corporations and non-residents. Where Canadian corporations enter into transactions with non-residents, it is important to consider the many Canadian tax implications that can arise.…

Loans - Interest-free or low-interest You have to include in income any benefit that a person receives as a result of an interest-free or low-interest loan because of an office, employment, or shareholding .…

loans made downstream to these affiliates can be non-interest-bearing. However, the deductibility of any interest expense incurred in Canada relating to making such a loan must be considered under the general interest deductibility guidelines. Avoidance of these rules through the use of a trust or partnership is not possible where…

Identify the appropriate arm’s length compensation for transactions. Organizations that engage in inter-company financial transactions such as: charging interest on inter-company debt, guarantee fees, and accounts receivable factoring must apply the arm’s length principle in determining the interest (or discount) rates used to avoid potentially significant transfer pricing adjustments.…

Canada case) are being routinely scrutinized by several tax authorities, all of whom bring their own specific complexities. On the taxpayer side, a common misconception can be that the pricing of an intercompany loan is a routine exercise. But this myth has been shattered by the “Chevron case,”…

Aug 15, 2018 · The tax is repaid following repayment of the loan. Consequently, if Company A makes a loan to Company B it would be wise to pay a ‘market rate’ of interest ie consistent with what Company A would receive from a similar investment elsewhere.…

In 2012-0464411I7, the Aggressive Tax Planning (ATP) section of the CRA’s Toronto North Tax Services Office was proposing (among other things) to assess a taxable benefit on the shareholder of one group company (Borrower Co) that had borrowed funds from another group company (Lender Co) on an interest-free basis. The ATP section was proposing to assess the entire amount of the loan as a taxable ……

Given the extent of these tax concerns, a company using intercompany loans should be prepared to undergo a tax audit that focuses on the underlying reasons for and documentation of these loans. Intercompany loans are recorded in the financial statements of individual business units, but they are eliminated from the consolidated financial statements of a group of companies of which the business units are a part, using intercompany elimination transactions.…

Jan 16, 2017 · The proper characterization of a transfer of funds to a business entity from a related entity may determine a number of tax consequences arising from the transfer, including, for example, the following: the imputation of interest income to the lender; the ability of the lender to claim a bad debt deduction; the payment of a constructive dividend to the lender’s owner where the “loan” is really a ……