CRA applies the B2B shareholder loan rules to a term deposit pledged by a family corporation to secure a business loan taken out by a shareholder

A 50% limited partner (Ms. X) funded her investment in an LP jointly owned with her husband through a $3M bank loan that was secured by a pledge to the bank of a $3M term deposit held by a corporation (Corporation B) equally owned by her and her husband. In finding that the back-to-back loan rules in s. 15(2.6) et seq. deemed her to owe $3M to Corporation B, CRA indicated that:

  • Ms. X had an amount outstanding ($3M) to an “immediate funder” (the bank),
  • the bank held an amount (the $3M term deposit) owing to an “ultimate funder” (Corporation B), and
  • "the condition in clause 15(2.16)(c)(i)(B) would be satisfied" (e.g., the $3M loan was permitted to remain outstanding because the term deposit was outstanding).

CRA also stated that the term deposit might also be a “specified right.”

Neal Armstrong. Summaries of 31 October 2017 External T.I. 2017-0690691E5 F under s. 15(2.16)(c)(i)(B) and s. 15(2.16)(c)(ii).