Barnicke/Huynh disagree with CRA that a contribution of capital to a sub is not a qualifying use under s. 95(2)(a)(ii)(D)(II).

There is a subtle difference in the wordings of s. 20(1)(c)(ii) and ss. 95(2)(a)(ii)(D)(II) and (II): the former refers to "an amount payable for property acquired for the purpose of ... producing income from the property;" the latter, to "an amount payable for property acquired for the purpose of ... producing income from property [not "the" property] where ... the property is excluded property [foreign affiliate shares of the payor]."

Barnicke and Huynh think that 2013-0496841I7 is wrong.  Where NR2 issues Note2 in consideration for its acquisition of Note1, which it then promptly contributes to its wholly-owned sub, NR3, it is appropriate to consider that it issued Note2 for the purpose of earning income from its shares of NR3: if it had exchanged Note1 for the issuance of shares of NR3, those NR3 shares clearly would represent the current use of the financing represented by Note2; and it should not make any difference that it instead contributed Note1 to NR3 (per IT-533, para. 25).

Neal Armstrong.  Summary of Paul Barnicke and Melanie Huynh, "TI Denies Cap D Rule", Canadian Tax Highlights, February 2014, p. 12 under s. 95(2)(a)(ii)(D).