Income Tax Act — I-3.3 17
Amount owing by non-resident 17 (1) If this subsection applies to a corporation resident in Canada in respect of an amount owing to the corporation (in this subsection 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 where 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 is the total of all amounts each of which is (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 debt, (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 taxation 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 (c) an amount included in computing the corporation’s income for the year or a subsequent taxation year under subsection 91(1) that can reasonably be attributed to interest on an amount owing (in this paragraph 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 (i) without the existence of the original debt, subsection (2) would not have deemed the debt to be owed by the non-resident person referred to in paragraph (1.1)(a), (ii) the original debt was owed by a non-resident person or a partnership each member of which is a non-resident person, and (iii) where subsection (11.2) applies to the original debt, (A) an amount determined under paragraph (11.2)(a) or (b) in respect of the original debt is an amount referred to in paragraph (2)(a), and because of the amount referred to in paragraph (2)(a), the debt is deemed to be owed by the non-resident person referred to in paragraph (1.1)(a), and (B) the original debt was owing by an intermediate lender to an initial lender or by an intended borrower to an intermediate lender (within the meanings of those terms assigned by subsection (11.2)). Amount owing by non-resident (1.1) Subsection (1) applies to a corporation resident in Canada in respect of an amount owing to the corporation if, at any time in a taxation year of the corporation, (a) a non-resident person 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 for B in subsection (1), if that subsection applied, for the year in respect of the amount owing 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 outstanding. Anti-avoidance rule — indirect loan (2) For the purpose of this section and subject to subsection (3), where (a) a non-resident person owes an amount at any time to a particular person or partnership (other than a corporation resident in Canada), and (b) it is reasonable to conclude that the amount or a portion of the amount became owing, or was permitted to remain owing, to the particular person or partnership because (i) a corporation resident in Canada made a loan or transfer of property, or (ii) the particular person or partnership anticipated that a corporation resident in Canada would make a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of any person or partnership (other than an exempt loan or transfer), the non-resident person is deemed at that time to owe to the corporation an amount equal to the amount,