CRA provides an opinion that the new s. 55(2) rules do not apply to a loss-shifting transaction

Profitco is wholly-owned by Lossco, which is wholly owned by Parent. Rather than engaging in a triangular loss shifting transaction (see, e.g, 2012-0437881R3) Profitco will simply borrow from Profitco (at an interest rate reflecting the loan’s subordinated status) and subscribe for non-voting cumulative redeemable retractable preferred shares of Lossco. Parent will agree, in a support agreement with Lossco, to make capital contributions to fund Lossco’s payment of the dividends, which will occur on the unwinding of the transactions.

Consistently with the policy announced at the 2015 annual CTF conference, CRA provided an opinion that, after giving effect the July 31, 2015 draft amendments, s. 55(2) will not apply to this dividend.

Neal Armstrong. Summary of 2015 Ruling 2015-0604071R3 under s. 111(1)(a).