CRA describes a ruling request that it considered to engage an abuse of the scheme of s. 80

We have provided the questions posed, and summaries of the preliminary oral responses given, at the December 2, 2025 Canadian Tax Foundation CRA Roundtable.

Q.1 concerned a CRA GAAR position.

In Year 1, a corporation resident in Canada ("Parentco") made a $1,000 interest-free loan to its wholly owned Canadian subsidiary ("Subco") and, in that year, Subco incurred a $1,000 non-capital loss.

For Year 2, Subco (which had become inactive) claimed the non-capital loss by implementing a loss consolidation arrangement with Parentco.

In Year 3, Parentco forgave the Subco loan and, immediately after such settlement, Subco was wound up into Parentco under s. 88(1), so that Parentco received all the property of Subco, having a nominal cost amount and FMV. Parentco claimed a capital loss of $1,000 on the loan settlement and Subco claimed the insolvency deduction under s. 61.3(1) to fully offset its inclusion under s. 80(13).

CRA indicated that it had refused to provide a favourable ruling for similar transactions. It noted that Subco benefited not only from a gain on the forgiveness of the loan but also from expenses and deductions related to the Subco loan, which generated the non-capital losses; and that this was contrary to the scheme of s. 80, as established in Lecavalier. Furthermore, two losses were being claimed regarding the same investment.

It considered this view to be consistent with Example 23 of IC88-2, Supp. 1 (respecting a corporation transferring all its assets to a wholly-owned subsidiary at stepped-up s. 85 agreed amounts so as to use its losses and so that its realization of a forgiven amount would apply to the Subco shares’ ACB rather than to more valuable tax attributes temporarily parked in Subco - followed by its amalgamation with Subco).

Regarding the Q.1 situation, CRA did not indicate whether the appropriate remedy would be to deny (i) the application of s. 61.3(1) to Subco, so that it would have an s. 80(13) tax liability that would flow through to Parentco on the wind-up (under s. 160 or otherwise), (ii) deny the interest deductions to Parentco under the loss consolidation arrangement or (iii) deny the capital loss to Parentco - although perhaps (i) would be the leading candidate, notwithstanding that the core object of s. 61.3(1) is merely to deal with a debtor that has no net assets.

Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.1 under s. 245(4).