CRA finds that s. 95(2)(a)(ii)(D)(I) does not apply to purchase-price indebtedness

An immediate LLC subsidiary of Canco (NR1) sold a subsidiary engaged in an active business (NR6) to a great-grandchild (NR4) in consideration for Note1 of NR4, and then sold Note1 to its immediate subsidiary (NR2) in consideration for Note2 of NR2.

Applying McCool, CRA found that 95(2)(a)(ii)(D)(I) did not apply to recharacterize the interest on Note2 as active business income as Note2 represented purchase-price indebtedness rather than borrowed money.

Neal Armstrong.  Summary of 21 October 2013 Memorandum 2013-0496841I7 under s. 95(2)(a)(ii)(D).