CRA provides the new standard formulation for s. 55(2) rulings on loss consolidation structures

CRA provided the usual rulings respecting a triangular loss-shifting arrangement for the shift of non-capital losses by Parentco to its wholly-owned Profitco (including a provincial GAAR ruling) except that it did not rule that s. 12(1)(x) or 9 would not apply respecting the funding by Parentco of Newco’s preferred share dividend obligations. Perhaps none was requested. In addition, it ruled that s. 55(2) would not apply to the dividends paid by Newco to Profitco to fund the interest on the loan by Parentco to Profitco, based on a representation that:

The only purpose of both the payment and the receipt of the dividends on Newco’s Preferred Shares … is to provide a reasonable return on the Newco Preferred Shares issued by Newco to Profitco. More specifically, none of the purposes of the dividends is to reduce the fair market value or capital gain of any share, nor to increase the total cost amounts of properties of Profitco.

Neal Armstrong. Summaries of 2016 Ruling 2016-0652041R3 under s. 111(1)(a) and s. 55(2.1)(b).