CRA rules on unwinding of tower structure that had used non-interest bearing loans

In a ruling on the unwinding of a tower structure in which the LLC and ULC had been funded with non-interest bearing U.S. dollar loans rather than share capital, CRA ruled that any capital loss realized on the settlement of these loans would not be denied by s. 40(2)(g)(ii).  This is consistent with the Byram line of cases, which indicate that a non-interest-bearing loan is made for an income producing purposes if it is made with a view to generating dividends on the shares held by the lender.  As a result there would be off-setting FX gains or losses realized by the borrowing partnership and the ULC in the tower structure, and any FX gain realized by the LLC on settling the loan owing by it to the ULC would be not recognized under s. 95(2)(i) given that it held only excluded property that was deemed to be used in an active business.

Neal Armstrong.  Summary of 2012 Ruling 2010-0386201R3 under s. 40(2)(g)(ii).