CRA is prepared to apply s. 248(28) to avoid a double inclusion arising under the upstream loan rules

Barnicke and Huynh have seen an unpublished interpretation.  If a grandchild foreign subsidiary (FA 2) of Canco which made a loan to it is wound-up into the immediate subsidiary (FA 1), this will result in a second income inclusion to Canco under the upstream loan rule (s. 90(6)) – yet Canco will only be entitled under s. 90(9) to one deduction for the exempt surplus of FA 2 which moved up to FA 1 on the liquidation.  However, CRA will apply s. 248(28)(a) to avoid such double inclusion.

Similar issues can arise if FA 1 and FA 2 merge.

Neal Armstrong.  Summary of Paul Barnicke and Melanie Huynh, "Upstream Loans: CRA Update," Canadian Tax Highlights, Vol. 21, No. 12, December 2013, p. 3 under s. 90(6).