CRA is now willing to apply the Trans-Prairie indirect use test to the safe harbour in s. 17(8)(a)(i)(A)

S. 17(8)(a)(i)(A) provides an exception to the imputed interest rule under s. 17(1) for outbound low-interest loans where the loan was used by a controlled foreign affiliate for the purpose of earning income from an active business, as defined. In a change of position, CRA has now indicated that it is willing to apply the (Trans-Prairie “fill the hole”) indirect use test described in the interest-deduction Folio in this context as well, so that such a loan used to fund a return of capital or accumulated profits that had funded an active business would fit the exception.

Neal Armstrong. Summary of 15 May 2017 External T.I. 2016-0676701E5 under s. 17(8)(a)(i)(A).