CRA ruling letter indicates that an intercompany subordinated loan will bear interest at the rate for a senior secured financing
CRA provided the usual rulings (including on s. 55(2)) respecting a transaction for the transfer of non-capital losses from Profitco to its Lossco parent by means of Lossco lending at interest to Profitco, Profitco subscribing for pref of a newly-incorporated sister corp (Newco) and Newco lending without interest to Lossco.
Notwithstanding that the loan made to Profitco was subordinated, the ruling letter states that the interest rate is “based on a comparison to the most recent arm’s length senior secured financing issued” by Lossco. It is unclear whether this was volunteered or volun-told.
The only financial capacity reps given are that Profitco has the financial capacity to pay the interest on the loan to it from its own cash flow and that Lossco has cash of a specified level and will fund annual contributions of capital to Newco (to fund dividend payments on the Newco pref) out of an independent source of income.
Neal Armstrong. Summary of 2018 Ruling 2018-0742641R3 under s. 111(1)(a).