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Abstract
Canada, like many other jurisdictions, has thin capitalisation rules that restrict the extent to which corporations can deduct interest paid to significant non-resident shareholders or related persons. These rules restrict the degree to which the Canadian tax base can be eroded through the payment of deductible interest rather than distributions of after-tax profits in the form of dividends. The thin capitalisation rules generally deny a deduction in respect of a portion of the total interest otherwise deductible in respect of applicable debts based on the portion, if any, of all applicable debts exceeding a specified multiple of equity. Before 2012, the rules specified a debt-to-equity ratio of 2:1. The existing rules, applicable to a corporation resident in Canada (a CRIC), define the concept of a specified shareholder as the category of significant shareholders that are relevant. A specified shareholder is a person that either alone or together with all persons not dealing at arm's-length owned shares of the CRIC representing an interest of 25% or more in the CRIC, measured by either votes or value