CRA restrictively interprets “series of loans or other transactions and repayments” in the upstream loan rules

An LLC subsidiary of a Canadian subsidiary (Canco3 - that was lower down in a corporate group controlled by a U.S. Pubco) received the repayment of a loan that it had made to a non-resident affiliated corporation (Forco2, which was not a foreign affiliate of Canco3), and used the repayment proceeds to purchase note receivables from group companies within the Forco2 silo and also to pay a dividend to Canco3 – which then lent some of this money “back” to Forco2 and also repaid loans owing to Canadian affiliates held in a separate silo from the Canco3 or Forco 2 silos.

CRA ruled that the repayment by Forco2 of its loan from the LLC would not be considered to be made “as part of a series of loans or other transactions and repayments” for the purpose of s. 90(8)(a) or 90(14). This is consistent with the favourably narrow interpretation that CRA has accorded to the quoted phrase in a s. 15(2) context.

The loan owing by the LLC had had a maturity date that was automatically extended for consecutive one-year terms unless terminated by either party. The “Additional Information section of this ruling letter stated that these automatic extensions did not result in a new loan being made for the purposes of s. 90(6).

Neal Armstrong. Summary of 2017 Ruling 2016-0670971R3 under s. 90(8)(a).