Pertinent loans or indebtedness
A pertinent loan or indebtedness (PLOI) refers to a debt for which an election has been filed under:
- subsection 15(2.11) of the Income Tax Act regarding a loan received, or an indebtedness incurred, by a non-resident corporation that is owed to a corporation resident in Canada (CRIC) that is controlled by the debtor or by another non-resident corporation with which the debtor does not deal at arm's length; or
- subsection 212.3(11) of the Act regarding an amount owing from a foreign affiliate of a CRIC that is controlled by a non-resident corporation and the amount is owed to the CRIC.
If a debt is a PLOI, it will be subject to the new deemed interest income rule under section 17.1 of the Act instead of potentially being treated as a deemed dividend.
Section 17.1 of the Act provides interest income deeming rules for the elective PLOI regimes for shareholder loans (subsection 15(2.11) of the Act) and the new foreign affiliate dumping rules (subsection 212.3(11) of the Act). Section 17.1 of the Act generally results in the CRIC having deemed interest income, in respect of a PLOI, at a rate at least equal to the prescribed rate.
There is no explicit line or box for this deemed interest income on the T2 Corporation Income Tax Return. Interest income determined under section 17.1 of the Act should be reported by the CRIC on Schedule 125, Income Statement Information, under field code 8230, "Other revenue".
Corporation A, a non-resident corporation, controls Corporation B, a CRIC with a December 31 tax year-end. On January 1, 2015, Corporation A borrows $5,000,000 from Corporation B at 0% interest. By December 31, 2016, Corporation A has not repaid the loan. If Corporation A and Corporation B choose to elect under subsection 15(2.11) of the Act for the debt between them to be a PLOI, there is no Canadian withholding tax on a deemed dividend and, instead, Corporation B has deemed interest income starting January 1, 2015 at the regular prescribed rate (rounded to two decimal places instead of rounded up to the next whole number) plus four percentage points (4%).
These new elective rules generally apply to amounts that become owing after March 28, 2012 for both the shareholder loan and foreign affiliate dumping regimes and to amounts that became owing before March 29, 2012 for which the maturity date was extended after March 28, 2012 for the foreign affiliate dumping regime.
The non-resident corporation that controls the CRIC and the CRIC must jointly elect in writing to the Canada Revenue Agency for a debt to be a PLOI. File the election at the tax Centre of the CRIC on or before the filing-due date for the tax year in which the amount became owing (or the extension was made). If the election is filed late, a penalty of $100 for each complete month from the due date applies. The election must include the following:
- the name and business number of the CRIC;
- the name of the non-resident corporation that controls the CRIC;
- the subsection of the Act that the election is filed under (for example 15(2.11) for shareholder loans or 212.3(11) for foreign affiliate dumping);
- the name of the non-resident corporation debtor;
- the amount of the PLOI; and
- the date the PLOI became owing to the CRIC (or the extension was made).
Forms and publications
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