INCOME TAX |
Income Calculation |
Deductions |
Magicuts Inc. v. Canada
A-494-98
2001 FCA 332, Rothstein J.A.
31/1/01
5 pp.
Appeal from T.C.C. decision appellant not entitled to deduct from income for 1989 taxation year sum of $1,355,026 as bad debt from U.S. subsidiary, and appellant liable for withholding tax on amount of $183,555 for same taxation year which Minister says deemed to have been paid as dividend to appellant's non-resident parent company--Appeal allowed on second point, dismissed on first point--Appellant and U.S. subsidiary converted debt to equity capital in U.S. subsidiary--Debt discharged by that conversion--Once conversion took place, no outstanding account receivable that could be considered bad debt--Not clear, on basis of documents in record, that amount in question in fact taken into appellant's income for tax purposes--With respect to withholding tax issue, question whether appellant may treat amounts owing between it and parent company on net basis--If no set off of accounts made, then appellant owed at least $183,555 by parent company and, prima facie, dividend deemed and withholding tax required to be paid--T.C.J. erred in finding no evidence of intent or agreement between parties to set off--Balance sheet entries constitute some evidence of intention and agreement between appellant and parent company to net intercorporate liabilities, sufficient to validate appellant's position on this point--Accordingly, as of February 28, 1989, no net amount owing from non-resident parent company to appellant, no deemed dividend, and therefore, no requirement to pay withholding tax.