Interpretation Bulletin 3003R, March 2004

Application

This bulletin replaces Information Bulletin Number 2754 originally published June 1997.

The bulletin sets out the policy of the Corporations Tax Branch (Branch) regarding the capital tax treatment of loans and advances created through the operation of cash concentration systems. The policy is effective for taxation years ending on or after December 31, 1997.

Introduction

1. A cash concentration system is a system by which a group of related corporations conducts its banking business through one group bank account in order to optimize cash management for all of the corporations together. The system operates through the use of a group concentration bank account, individual current operating accounts and mirror accounts.

Description

2. The group concentration account, which is usually maintained by and in the name of the parent corporation, is a consolidation of the transactions in the current operating accounts of all of the individual corporations in the related group. Transfers to and from the group concentration account are usually done at the end of each business day in order to eliminate any cash or overdraft balances in each corporation. These transfers are facilitated through the use of mirror accounts.

Inclusion in Paidup Capital

3. When a transfer is made under a cash concentration system, which results in a liability to a related corporation, the Branch requires that loan or advance payable to be included in paid-up capital.

Eligible Investment Claim

4. When a corporation makes a transfer under a cash concentration system which results in a receivable from another related corporation, the Branch will allow the corporation to claim that loan or advance receivable as an eligible investment, provided that it meets the requirements discussed in Interpretation Bulletin 3015 and all of the following conditions are met:

• the transfer to and from the group concentration account creates legally effective rights and obligations
• the banking agreement states that the parent corporation is the owner of the group concentration account and is also responsible for the net overdraft position in that account, and
• both of the corporations have recorded the transfer in their financial statements and books and records of account.

For More Information

For further information, please contact Desk Audit, general tax enquiries

• Pickering 905 837-3888 or 905 837-3889
• Toll-free 1 866 805-7702 ext. 3888
• Fax 905 837-3800

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