Principal Issues: 1. Will the interest paid to NR Holdco by BBCo be deductible by BBCo under paragraph 20(1)(c) of the Act? 2. Will subsection 15(2) of the Act apply to the cash sweeping transactions? 3. Will the fact that BBCo may make a loan to a Participant in financial difficulty, in and of itself, result in a subsection 15(1) benefit being conferred on NR Holdco?
Position: 1. Yes. 2. No. 3. No
Reasons: 1. The interest will meet the requirements of paragraph 20(1)(c). 2. Where BBCo and each of the Participants are corporations resident in Canada, and provided there will be no repatriation or loans by BBCo or the Participants back to NR Holdco, subsection 15(2) of the Act will not apply to the cash sweeping transaction. 3. Where a bona fide intercompany loan is made in the ordinary course of carrying on the businesses of the corporations and the corporation receiving the loan is, at the time of the loan, in a position to repay the loan or provide reasonable security for repayment, the CRA has a long standing position that subsection 15(1) will not be applied.
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