CRA is negative on using novation as the solution for a s. 15(2) loan

CRA considers that where Canco seeks to avoid the application of s. 15(2) to a loan owing to it by a non-resident sister company by assigning that loan to their non-resident parent in repayment of a loan owing by it to the parent, this assignment will not qualify as a repayment of the loan (so that s. 214(3)(a) could then apply to impose Part XIII tax on the loan amount), unless that loan was also novated – and that GAAR might be applied to any such novation.

What if after novating the loan (which arose before March 2012), and rather than assigning the loan, a PLOI election is made on the basis that it now is a "new" post March 2012 loan? Quite oddly, the response of CRA implies that it considers that the novated loan would not be a new loan (and therefore is still not be eligible for the PLOI election) if in the circumstances the novation should be regarded as part of a series of loans or other transactions and repayments described in the IT Bulletin on s. 15(2.6).

Neal Armstrong. Summaries of 8 September 2014 T.I. 2013-0482991E5 under s. 15(2.6), s. 15(2.11) and s. 221.2(1).