Regulation 404 - Banks

In response to an inquiry as to whether an arrangement is a loan only if there is a lender-borrower relationship between the bank and the debtor (no particulars given), the Directorate stated:

[A]n amount is a loan, for the purposes of Section 404 of the ITRs, only if, there is a lender-borrower relationship between the bank and the debtor....The courts have consistently found that in order for an amount to be a "loan" there has to be a lender and borrower relationship between the taxpayers. This definition is broad enough to include most banking arrangements for the purposes of Section 404.."

Cash transferred by a bank to a customer in exchange for shares under the terms of the standard-form repo agreement would not constitute a loan for purposes of Regulation 404(1)(b).

X Co mines and does initial ore processing in Province A, and further processes the ore and exports it in Province B. After quoting Reg. 404(4)(c)(ii), CRA confirmed that this Regulation would apply in any year in which there were salaries and wages paid to employees at both the permanent establishments located in the two provinces, and stated (TaxInterpretations translation):

The question as to whether merchandise is produced and/or fabricated by a taxpayer partly in a given province and partly in another, is one of fact. Assuming in this instance that the "final product" sold by X Co is not entirely produced or fabricated in Province B (with the constituent concentrate having been produced or fabricated in a permanent establishment situated in Province A and delivered to a permanent establishment situated in Province B for its processing into the product which is sold), it appears reasonable to conclude that the "final product" is produced or fabricated partly in Province A and partly in Province B.

As Reg. 404(4)(c)(ii) prevailed over Reg. 404(4)(b), its application would not be affected by the negotiation of the export sales by personnel at the Province B permanent establishment.