CRA confirms that a holding company investment may satisfy the exemption from the FAD rules for closely-connected business investments

An investment made by a "CRIC" (a Canadian corporation controlled by a non-resident parent) in a US subsidiary (viewed as a "subject corporation") will not engage the deemed dividend rule in s. 212.3(2) if that investment satisfies the exeception in s. 212.3(16), including a requirement that the "business activities caried on by the subject corporation and all other corporations…in which the subject corporation has ... an equity percentage ... are ... on a collective basis, more closely connected to the business activities carried on in Canada ... than to the business activities carried on by any [specified] non-resident corporation...."

CRA has confirmed that this more-closely-connected test can be satisfied where the subject corporation (US Holdco) itself is a passive holding company, so that all the closely-related US business activities are carried on by subsidiaries of US Holdco.

Neal Armstrong.  Summary of 6 September 2013 T.I. 2013-0474671E5 under s. 212.3(16)(a).