CRA indicates that the upstream loan rules can be used to avoid the debt forgiveness rules

CRA’s view is that when an upstream loan to Canco from its wholly owned CFA is forgiven following a sale of the CFA, this will not qualify as a repayment of the loan for purposes of the upstream loan rules so that, at best, reserves will need to be claimed under s. 90(9) throughout the indefinite lifetime of Canco. However, the debt forgiveness rules will not apply to the forgiveness because the amount of the upstream loan is included in the income of Canco under s. 90(6) of the upstream loan rules, even though there may be the offsetting s. 90(9) deduction.

Neal Armstrong. Summaries of 20 March 2017 External T.I. 2014-0545591E5 under s. 90(9) and s. 80(1) – excluded obligation – para. (a).