Finance issues comfort letter respecting provision of a deemed repayment rule for B2B loans under s. 90(7)

The upstream loan regime in s. 90 provides for income inclusions under s. 90(6) for certain loans and indebtedness owing to FAs, and offsetting deductions on repayment under s. 90(14). The rules contain back-to-back loan (B2B) provisions in s. 90(7). Finance was provided with an example where a B2B loan from an foreign affiliate of Canco to Forco 1 and by Forco 1 to Forco 2 (both specified debtors respecting Canco but not foreign affiliates) was repaid, and a fresh loan was made to a third specified debtor respecting Canco. The concern was expressed that the repayment of such B2B loan would not result in repayment of the deemed direct loan under s. 90(7) from Canco to Forco 2, so that Canco would face double income inclusions from the still-outstanding deemed loan and from the new actual loan.

As foreshadowed at the 2018 IFA Finance Roundtable, Q.10, Finance indicated that it was recommending to the Minister that there be new repayment rules (effective for repayments after April 10, 2018) similar to the ones in s. 15, so as to eliminate a second income inclusion under the (now deemed-repaid) B2B loan. In particular, what is recommended are:

rules - similar to the deemed repayment rules in subsections 15(2.18) and (2.19) (which apply for the purposes of the back-to-back shareholder loan rules in subsections 15(2.16) and (2.17), but with such modifications as are required by the context of the upstream loan rules - that would deem all or a portion of a loan that is deemed to be made under subsection 90(7) to be repaid for the purposes of paragraph 90(8)(a) and subsection 90(14) if certain conditions are met.

These conditions would be similar to those in subsection 15(2.18). In general terms, a loan deemed to have been made under subsection 90(7) would be deemed to be repaid, in whole or in part, as a result of certain repayments, in whole or in part, of one or both of the loans between the "initial lender" and the "intermediate lender", and the "intermediate lender" and the "intended borrower" (as those terms are defined in subsection 90(7)).

Neal Armstrong. Summary of May 1, 2018 Finance Comfort letter under s. 90(14).