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ARTICLE · 30 NOVEMBER 2015

Canadian Thin Capitalization Development On Non-Cdn.$ Intra-Group Debt

Borden Ladner Gervais LLP
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At the Canada Revenue Agency (CRA) Round Table held on November 24, 2015 at the 2015 Canadian Tax Foundation Annual Conference in Montréal, the CRA made an announcement that will be helpful to many Canadian subsidiaries of multinational groups who borrow from non-Canadian group members in currencies other than the Cdn.$.

CanadaTax
Steve Suarez
Steve Suarez
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At the Canada Revenue Agency (CRA) Round Table held on November 24, 2015 at the 2015 Canadian Tax Foundation Annual Conference in Montréal, the CRA made an announcement that will be helpful to many Canadian subsidiaries of multinational groups who borrow from non-Canadian group members in currencies other than the Cdn.$. This announcement indicates that the CRA applies Canada's "thin capitalization" rules limiting the deductibility of interest expense so as to ignore F/X fluctuations on the debt principal occurring after the debt is incurred. This confirmation will be of considerable assistance to many Canadian debtors, given the recent depreciation of the Cdn.$ (in particular against the USD) that might otherwise have caused such borrowers to exceed the permitted thin capitalization limits.

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