Canada Delays Implementation of New Income Imputation Rules

On December 10, 1998, a Notice of Ways and Means Motion to Amend the Income Tax Act, (Canada) (the "Act") was tabled in Parliament. The Motion contains several amendments to the section 17 interest imputation rules that generally apply where a corporation resident in Canada lends money to a non-resident person on an interest-free or bargain interest basis and the loan remains outstanding for a year or more. The proposed amendments originally were intended to apply to taxation years that begin after February 23, 1998 (see commentary below regarding subsequent extension) and differ from the draft version released in October 1998.

The proposed amendments expand the application of section 17 of the Act to a loan from one non-resident of Canada to another where it is reasonable to conclude that the amount owing was connected to a loan or transfer of property from a corporation resident in Canada. Such a loan could subject the Canadian resident corporation to the new interest