CRA finds that a Canadian parent realizes income if an upstream loan owing by it is extinguished on winding up a CFA

A loan from a foreign affiliate to its Canadian parent generally must be repaid within two years lest the amount of the loan be included in the parent’s income under s. 90(6). CRA was asked whether this payment requirement would be considered to be satisfied if the foreign affiliate is wound up (perhaps on the basis that there is an implicit set-off between the amount owing by the parent and the winding-up distribution payable by the foreign affiliate - see e.g., 2013 Ruling 2013-0498551R3).

CRA indicated that it was not prepared to attempt to provide an administrative solution to this problem (so that such income inclusion would occur under current law) and had drawn this issue to the attention of Finance.

Neal Armstrong. Summary of 24 November 2015 CTF Annual Roundtable, Q. 8 under 2015 CTF Roundtable.