CRA provides loss-shifting rulings involving limited recourse loans

CRA provided standard loss-shifting rulings on transactions in which three losscos in the group annually shift losses to a single newly-incorporated Lossco, which is then sold at FMV to a Profitco in the group whose ownership is redacted, with such Lossco immediately wound-up into the Profitco under s. 88(1.1). The annual un-winding of the loss shifting structures used daylight loans rather than being done on a cashless basis. The interest-bearing loans, whose proceeds were used by the new Lossco to subscribe for preferred shares of Newcos, were made to Lossco on a limited recourse basis, i.e., recourse was limited to such preferred shares.

Creditworthy reps were made on a consolidated basis, i.e., there is a rep that “The borrowing capacity of Parentco and its subsidiaries significantly exceeds the maximum amount … required to complete the Proposed Transactions … .”

Neal Armstrong. Summary of 2017 Ruling 2017-0706211R3 under s. 111(1)(a).