CRA indicates that the replacement of an “2nd-tier” upstream loan to a non-resident parent by a PLOI will not occur as part of the same series

Canco indirectly distributed $10M to its non-resident parent (NRco) in 2010 through a capital contribution to a new foreign subsidiary (FA) and a loan of the $10M by FA to NRco. In order to unwind this upstream loan structure by the August 19, 2016 deadline for doing so, NRco will repay the $10M loan owing to FA, FA will pay a $10M dividend to Canco out of pre-acquisition surplus and Canco will make a fresh (direct) loan to NRco, which it will elect to be a “pertinent loan or indebtedness.”

CRA confirmed that the new PLOI loan will not cause the old loan to be considered to have been “repaid…otherwise than as part of a series of loans or other transactions and repayments,” so that a $10M income inclusion to Canco under the upstream loan rules will be avoided.

Neal Armstrong. Summary of 26 May 2016 IFA Roundtable, Q. 4 under s. 90(8)(a).