2025 Ruling 2025-1061971R3 - Loss consolidation arrangement

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a loss consolidation arrangement involving a loan to buy preferred shares for the purposes of earning income would meet the CRA's requirement for acceptable loss consolidation transactions.

Position: Yes.

Reasons: Consistent with previous rulings.

XXXXXXXXXX 2025-106197

XXXXXXXXXX, 2025

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers (the “Taxpayers”).

To the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:

i. in a previously filed tax return of the Taxpayers or a related person and:

A. being considered by the CRA in connection with such return;

B. under objection by the Taxpayers or a related person; or

C. the subject of a current or completed court process involving the Taxpayers or a related person; or

ii. the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.

Unless specified otherwise, all statutory references herein are to provisions or parts of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended to the date hereof (the “Act”), and all references to monetary amounts are in Canadian dollars.

This document is based solely on the facts described below. Any documentation submitted with your request does not form part of the facts except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.

DEFINITIONS

In this letter, the following terms or expressions have the meanings specified:

“Aco” means XXXXXXXXXX;

“affiliated person” has the meaning assigned by section 251.1, read without reference to the definition of “controlled” in subsection 251.1(3);

“arm’s length” has the meaning assigned by subsection 251(1);

“Bco” means XXXXXXXXXX;

XXXXXXXXXX;

“CRA” refers to the Canada Revenue Agency;

“Daylight Loan 1” means a loan made by External Lender to Internal Lender, as described in Paragraph 18;

“Daylight Loan 2” means a loan made by Internal Lender to Lossco, as described in Paragraph 19;

“dividend rental arrangement” has the meaning assigned by subsection 248(1);

“Effective Date” means the date on which the IB Loan is made;

“eligible group entity” has the meaning assigned by subsection 18.2(1);

“excepted dividend” has the meaning assigned by section 187.1;

“excluded dividend” has the meaning assigned by subsection 191(1);

“excluded interest” has the meaning assigned by subsection 18.2(1);

“External Lender” is an arm’s length financial institution to the Taxpayers;

“fair market value” or “FMV” means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm’s length and under no compulsion to act, expressed in terms of cash;

“GAAR” means the general anti-avoidance rule in section 245;

“IB Loan” means the interest bearing loan made by Lossco to Profitco described in Paragraph 20;

“IB Loan Interest Rate” means the interest rate on the IB Loan described in Paragraph 20(a);

“IB Note” means the promissory note described in Paragraph 20;

“Internal Lender” means XXXXXXXXXX;

“Loss Consolidation Period” means, in respect of Profitco, the time period beginning immediately after the advance of Daylight Loan 1 described in Paragraph 18 and ending at the time the loss consolidation structure is wound up under Paragraphs 30 and 31;

“Lossco” means XXXXXXXXXX;

“NIB Loan” means the non-interest bearing loan described in Paragraph 23;

“NIB Note” means the non-interest bearing promissory note described in Paragraph 23;

“non-capital loss” has the meaning assigned by subsection 111(8);

“Newco” means XXXXXXXXXX, a corporation recently incorporated under the XXXXXXXXXX;

“Newco Common Share” means a common share in the capital stock of Newco;

“Newco Preferred Share” means a preferred share in the capital stock of Newco having the terms and conditions described in Paragraph 16;

“Paragraph” refers to a numbered paragraph in this letter;

“principal amount” has the meaning assigned by subsection 248(1);

“private corporation” has the meaning assigned by subsection 89(1);

“Profitco” means XXXXXXXXXX;

“Proposed Transactions” means the transactions described in Paragraphs 15 to 31;

“PUC” means “paid-up capital” and has the meaning assigned by subsection 89(1);

“related persons” has the meaning assigned by subsection 251(2);

“Redemption Amount” of a Newco Preferred Share has the meaning described in Paragraph 16(b);

“Rulings” means the advance income tax rulings labelled “A” to “J” in this letter;

“stated capital” means the amount of capital determined in respect of a class or series of shares in accordance with the governing legislation of the corporation;

“Support Agreement” means an agreement entered into by Profitco, Lossco and Newco providing Newco with a funding entitlement in an amount equal to the dividends payable on the Newco Preferred Shares;

“taxable Canadian corporation” has the meaning assigned by subsections 89(1) and 248(1);

“taxable dividend” has the meaning assigned by subsections 89(1) and 248(1);

“taxable preferred share” has the meaning assigned by subsection 248(1);

“Taxpayer Group” means Ultimate Parent and related persons;

“Taxpayers” mean the entities described on page 1 of this letter;

“term preferred share” has the meaning assigned by subsection 248(1); and

“Ultimate Parent” means XXXXXXXXXX.

FACTS

1. Ultimate Parent is a corporation incorporated and resident in XXXXXXXXXX and is a non-resident of Canada for the purposes of the Act. The shares of Ultimate Parent are listed on the XXXXXXXXXX.

2. Each of Aco and Bco is a corporation incorporated and resident in XXXXXXXXXX and is a non-resident of Canada for the purposes of the Act. Each of Aco and Bco is a direct, wholly-owned subsidiary of Ultimate Parent. Ultimate Parent, Aco and Bco are all related persons.

3. Lossco is a private corporation and a taxable Canadian corporation that was incorporated under the XXXXXXXXXX. Lossco is resident in Canada for the purposes of the Act. All of the issued and outstanding shares of Lossco are legally and beneficially owned by Aco.

4. Lossco’s principal business activities are the XXXXXXXXXX. Lossco has a taxation year-end of XXXXXXXXXX. Lossco’s registered address is XXXXXXXXXX.

5. Lossco operates through a permanent establishment solely in XXXXXXXXXX.

6. Lossco’s non-capital loss carry-forward at the end of its XXXXXXXXXX taxation year was $XXXXXXXXXX. Specifically, the non-capital losses were incurred in the following Lossco’s taxation years:

XXXXXXXXXX

7. Lossco’s non-capital loss carry-forward arose from the costs and expenses associated with the operation of Lossco’s XXXXXXXXXX business. XXXXXXXXXX, it is possible that Lossco will continue to incur net losses for tax purposes in its upcoming taxation years.

Lossco’s undepreciated capital cost is estimated to be $XXXXXXXXXX in each of XXXXXXXXXX taxation years.

8. Each of Profitco and Internal Lender is a private corporation and a taxable Canadian corporation that was incorporated under the XXXXXXXXXX. Each of Profitco and Internal Lender is resident in Canada for the purposes of the Act. All of the issued and outstanding shares of Profitco and of Internal Lender are legally and beneficially owned by Bco.

9. Profitco’s principal business activities are the XXXXXXXXXX. Profitco has a taxation year-end of XXXXXXXXXX. Profitco’s registered address is XXXXXXXXXX.

10. Profitco operates through permanent establishments in XXXXXXXXXX.

11. Profitco’s taxable income for its taxation year that ended on XXXXXXXXXX was $XXXXXXXXXX. Profitco estimates its taxable income to be approximately $XXXXXXXXXX in each of its XXXXXXXXXX taxation years, respectively.

12. Profitco expects its taxable income in each year that the IB Loan is outstanding, before the deduction of any interest expense in respect of the IB Loan pursuant to the Proposed Transactions, to exceed the amount of such interest.

13. On XXXXXXXXXX, Newco was incorporated under the XXXXXXXXXX. Newco is a private corporation and a taxable Canadian corporation. Since its incorporation Newco has not carried out, and will not carry out at any time, any business and its activities will be solely limited to those contemplated by the Proposed Transactions. The taxation year of Newco ends on XXXXXXXXXX of each year. The authorized capital of Newco currently consists of a single class of common shares (the “Newco Common Shares”).

14. Lossco subscribed for XXXXXXXXXX Newco Common Shares on the incorporation of Newco for an aggregate subscription price of $XXXXXXXXXX ($XXXXXXXXXX per share). Newco added the sum of $XXXXXXXXXX to its stated capital account in respect of the Newco Common Shares. Lossco holds the Newco Common Shares as capital property.

PROPOSED TRANSACTIONS

Implementation of the Loss Consolidation Arrangement

15. The authorized capital of Newco will be amended to consist of two classes of shares, being preferred shares (the “Newco Preferred Shares”) and the Newco Common Shares.

16. The terms of the Newco Preferred Shares will be the following:

(a) each Newco Preferred Share will be non-voting;

(b) each Newco Preferred Share will be redeemable at the option of Newco or the holder thereof for the amount for which it was issued less any previous returns of capital made thereon (the “Redemption Amount”);

(c) each Newco Preferred Share will entitle the holder thereof to receive a cumulative annual dividend equal to a fixed percentage of the Redemption Amount, which percentage shall be equal to the IB Loan Interest Rate plus an additional amount of between XXXXXXXXXX% per annum, and which shall be calculated and accrued daily and be paid (i) annually on the anniversary of the first day of the month in which the Effective Date occurred and (ii) immediately before the time at which any of the Newco Preferred Shares are redeemed; and

(d) the payment of the Redemption Amount may be satisfied, at the holder’s option, either by (i) a cash payment, (ii) delivery of property having a fair market value at the time of redemption equal to the Redemption Amount, (iii) the issuance of a non-interest bearing promissory note by Newco with a principal amount equal to the Redemption Amount or (iv) the assignment of all or a portion of the NIB Note, to the extent of the Redemption Amount, to the holder of the Newco Preferred Shares.

17. Following the amendment of the authorized capital of Newco to account for the creation of the Newco Preferred Shares, the Newco Common Shares will entitle their holder (i) to receive dividends when, as and if declared by the board of directors of Newco, (ii) to XXXXXXXXXX vote per Newco Common Share held and, (iii) in the event of the liquidation, dissolution or winding-up of Newco, to receive all of the property and assets of Newco remaining after payment to the holders of the Newco Preferred Shares of any entitlements thereunder.

18. Internal Lender will borrow approximately $XXXXXXXXXX from External Lender pursuant to a one-day loan (“Daylight Loan 1”) on arm’s-length commercial terms customary for that type of loan. Daylight Loan 1 will bear interest at an arm’s length rate to the extent that any amount of principal remains outstanding at the end of the business day in which such principal is advanced, although it is not expected that any principal will remain outstanding at the end of such business day. External Lender will charge a fee to Internal Lender for making the loan available, which fee amount is currently estimated to be between $XXXXXXXXXX.

19. Internal Lender will use the total proceeds received under Daylight Loan 1 to loan the amount of $XXXXXXXXXX to Lossco, on equivalent terms as Daylight Loan 1 (“Daylight Loan 2”). It is not expected that Daylight Loan 2 will remain outstanding at the end of the business day in which the loan is made.

20. Lossco will use the proceeds of the Daylight Loan 2 to make an interest-bearing loan to Profitco (the “IB Loan”), pursuant to a subordinated unsecured promissory note with a principal amount of $XXXXXXXXXX (the “IB Note”) having the following terms:

(a) Simple interest will accrue on the principal amount due under the IB Note and will be calculated daily at an annual fixed rate equal to an estimated arm's length rate, presently estimated to be XXXXXXXXXX% per annum (the “IB Loan Interest Rate”). The interest on the principal amount due under the IB Note will be paid on the same dates that the dividends on the Newco Preferred Shares are paid;

(b) The IB Note will have a term of XXXXXXXXXX years, and provide that Profitco shall have the right to repay the principal amount and accrued interest under the IB Note at any time prior to the end of the term without bonus or penalty; and

(c) The IB Note will provide that the principal amount borrowed under the IB Loan may be repaid and satisfied by (i) a cash payment, (ii) delivery of property, including the Newco Preferred Shares, to the extent of the fair market value of such property at such time, (iii) set-off against the NIB Loan, provided that Profitco is the holder of the NIB Note at the time of repayment.

21. Profitco will use all of the proceeds received from the IB Loan to subscribe for XXXXXXXXXX Newco Preferred Shares at an aggregate subscription price equal to $XXXXXXXXXX ($XXXXXXXXXX per share). Newco will add the sum of $XXXXXXXXXX to its stated capital account in respect of the Newco Preferred Shares as a result of the issuance of the XXXXXXXXXX Newco Preferred Shares.

22. Concurrently with the transactions in Paragraphs 20 and 21, Lossco, Newco and Profitco will enter into the Support Agreement. Pursuant to the Support Agreement, Lossco will commit to make capital contributions into Newco to fund dividends on the Newco Preferred Shares.

23. Newco will use all of the proceeds received from the Newco Preferred Shares subscription to make a loan to Lossco (the “NIB Loan”), pursuant to a subordinated unsecured promissory note with a principal amount of $XXXXXXXXXX (the “NIB Note”). The NIB Note will not bear any interest and will be payable on demand. Lossco will also be entitled to repay the NIB Loan by assigning the IB Note to the holder of the NIB Note.

24. Lossco will use the proceeds from the NIB Loan to repay the Daylight Loan 2 to Internal Lender.

25. Internal Lender will use the proceeds from the repayment of Daylight Loan 2 to repay Daylight Loan 1 to External Lender.

Maintenance of the Loss Consolidation Arrangement

26. On an annual basis, Lossco will make a capital contribution to Newco in an amount sufficient to satisfy any accrued and unpaid dividends on the Newco Preferred Shares held by Profitco. Lossco will use its own available cash resources and/or borrow funds XXXXXXXXXX in order to make the contribution to Newco. No shares will be issued by Newco with respect to the capital contribution and no amount will be added to the stated capital of any class of shares of Newco or, for greater certainty, to the PUC of any class of shares of Newco. For accounting purposes, the amount of the capital contributions received by Newco will be added to its contributed surplus in respect of the Newco Common Shares.

27. Using the proceeds of the capital contribution described in Paragraph 26, and subject to the applicable corporate law solvency tests, Newco will declare and pay the full amount of the annual dividend on the Newco Preferred Shares held by Profitco in accordance with the terms of the Newco Preferred Shares.

28. Upon receipt of the dividend from Newco as described in Paragraph 27, Profitco will pay all accrued and unpaid interest due and payable on the IB Loan to Lossco, pursuant to the terms of the IB Note. Profitco’s expected interest deductions will be approximately $XXXXXXXXXX such that Profitco’s total income would be $XXXXXXXXXX in each of its XXXXXXXXXX taxation years, respectively. Profitco does not have an existing non-capital loss carryforward balance.

29. Upon receipt of the interest payment from Profitco as described in Paragraph 28, Lossco will repay any amounts borrowed XXXXXXXXXX as described in Paragraph 26.

Unwinding of the Loss Consolidation Arrangement

30. The loss consolidation structure will be unwound in the manner described below no later than 36 months after the commencement of the Loss Consolidation Period:

(a) Lossco will make a capital contribution to Newco in an amount sufficient to satisfy the accrued dividends payable at that time by Newco on the Newco Preferred Shares as a result of the redemption of such shares as described in Paragraph 30(e). Lossco will use its own available cash resources and/or borrow funds XXXXXXXXXX in order to make the contribution to Newco. No shares will be issued by Newco with respect to the capital contribution and no amount will be added to the stated capital of any class of shares of Newco or, for greater certainty, to the PUC of any class of shares of Newco. For accounting purposes, the amount of the capital contributions received by Newco will be added to its contributed surplus in respect of the Newco Common Shares.

(b) Upon receipt of the capital contribution from Lossco as described in Paragraph 30(a), subject to the applicable corporate law solvency tests, Newco will pay all accrued and unpaid dividends on the Newco Preferred Shares held by Profitco in accordance with the terms of the Newco Preferred Shares.

(c) Upon receipt of the dividends from Newco as described in Paragraph 30(b), Profitco will pay all accrued and unpaid interest due and payable on the IB Loan to Lossco, pursuant to the terms of the IB Note.

(d) Upon receipt of the interest payments from Profitco as described in Paragraph 30(c), Lossco will repay any amounts borrowed from a member of the Taxpayer Group as described in Paragraph 30(a).

(e) Newco will redeem all the Newco Preferred Shares held by Profitco and Profitco will elect to receive the Redemption Amount by having Newco assign the NIB Note to Profitco in accordance with the terms of the Newco Preferred Shares. The NIB Note will have a principal amount and fair market value equal to the aggregate Redemption Amount and fair market value of the Newco Preferred Shares redeemed; and

(f) Lossco and Profitco will agree to set off the amount due under the NIB Note against the amount due under the IB Note as repayment in full. The obligations under the NIB Note and the IB Note will be cancelled.

31. Immediately following completion of the transactions described in Paragraph 30, Lossco, as sole shareholder of Newco, will pass a resolution authorizing and requiring the wind-up and dissolution of Newco pursuant to subsection 88(1). Effective as of the making of such resolution, Newco’s assets will be distributed to Lossco and its liabilities, if any, will be assumed by Lossco. Newco will file articles of dissolution with the appropriate corporate registry within a reasonable time after the winding-up resolution is passed.

ADDITIONAL INFORMATION

32. Ultimate Parent, Aco, Bco, Internal Lender, Lossco, Profitco, and Newco have been and will be, at all relevant times, related persons and affiliated persons for the purposes of the Act. The structure will be immediately unwound in the manner described in Paragraphs 30 to 31 if any entity previously mentioned in this Paragraph ceases to be affiliated with any other entity referred to in this Paragraph.

33. No acquisitions of control have occurred, or are anticipated to occur, as part of the series of transactions or events that includes the Proposed Transactions in respect of any entity referred to in Paragraph 32.

34. The interest rate on the IB Note is an arm’s length rate, and the terms of the IB Note are arm’s length terms.

35. At the time of the Proposed Transactions:

(a) Profitco will have the solvency and liquidity to service the amounts due under the IB Note as described in Paragraphs 28 and 30(c);

(b) Lossco will have the financial capacity, including accessing its leverage capacity, to make the capital contributions into Newco, as described in Paragraphs 26 and 30(a) required for the payment of the dividends on the Newco Preferred Shares; and

(c) Newco will have the financial capacity to satisfy the applicable solvency test and liquidity test under the XXXXXXXXXX required to pay the dividends on the Newco Preferred Shares as described in Paragraphs 27 and 30(b) and to redeem the Newco Preferred Shares as described in Paragraph 30(e).

36. None of the corporations involved in the Proposed Transactions has or will have entered into a dividend rental arrangement with respect to any of the shares issued for the purposes of completing the Proposed Transactions.

37. Neither Profitco, Lossco nor Internal Lender is, or will be, a specified financial institution within the meaning of subsection 248(1) of the Act. Furthermore, Profitco will not acquire or be considered to have acquired the Newco Preferred Shares in the ordinary course of its business. Lossco will not enter into the Support Agreement in the ordinary course of its business. Newco is not and at all relevant times will not be a financial intermediary corporation as that term is defined in subsection 191(1).

38. The Newco Preferred Shares, will not, at any time, be:

(a) the subject of any undertaking that is referred to in subsection 112(2.2) as a “guarantee agreement”;

(b) the subject of a dividend rental arrangement as that term is defined in subsection 248(1);

(c) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or

(d) issued for consideration that includes:

i. an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or

ii. any right of the type described in subparagraph 112(2.4)(b)(ii).

39. The Newco Preferred Shares will be taxable preferred shares and term preferred shares.

40. Dividends paid on the Newco Preferred Shares to Profitco, as described in Paragraphs 27 and 30(b), will be excepted dividends within the meaning assigned by section 187.1 and excluded dividends within the meaning assigned by subsection 191(1).

41. Dividends paid on the Newco Preferred Shares to Profitco, as described in Paragraphs 27 and 30(b), have no other purposes than the purposes described under the heading “Purposes of the Proposed Transactions” below.

42. Neither Lossco nor Profitco will claim, at any time, a capital loss in respect of a disposition of any Newco Common Share or Newco Preferred Share.

43. The Proposed Transactions are not being undertaken to refresh non-capital losses or facilitate the use of such losses in a taxation year after the taxation year in which such losses would have otherwise expired in the hands of Lossco.

44. The Proposed Transactions are not intended to generate a significant loss carry-forward balance in Profitco (having regard to the expected carry-back of losses to prior taxation years) or interest income in Lossco in excess of amounts required to fully utilize the loss carry-forwards described in Paragraph 6, and the Taxpayers will undertake steps, including either reducing the amount of the outstanding principal amount of the IB Loan and the Newco Preferred Shares or fully unwinding the arrangements, at a time that will prevent any significant loss carry-forward balance in Profitco or excess interest income in Lossco from arising.

45. Profitco and Lossco are not and at all relevant times will not be financial institution group entities as defined in subsection 18.2(1).

46. Lossco and Profitco may make a joint election in each relevant taxation year in prescribed form pursuant to subsection 18.2(1) to have all or part of the interest on the IB Loan recognized as excluded interest for such year. If such an election is to be filed for a particular taxation year, it will be filed by the earlier of the filing due date of Lossco and Profitco for its taxation year in which the interest was paid or became payable.

47. Profitco and Lossco have as their tax reporting currency and functional currency, the Canadian dollar. Neither Profitco nor Lossco has previously elected, pursuant to subsection 261(3), to report its Canadian tax results in a functional currency other than the Canadian dollar.

48. The amount of Daylight Loan 1 will not exceed the borrowing capacity of the Taxpayer Group.

49. The Proposed Transactions will be legally effective.

PURPOSES OF THE PROPOSED TRANSACTIONS

50. The purpose of the Proposed Transactions is to consolidate taxable income and non-capital losses within a group of affiliated and related persons. The Proposed Transactions will enable Lossco to earn interest income on the IB Loan and thus will enable Lossco to effectively utilize its non-capital losses already incurred as well as future non-capital losses and to permit Profitco to effectively utilize such non-capital losses.

51. The purpose of both the payment and the receipt of the dividends on the Newco Preferred Shares as described in Paragraphs 27 and 30(b) is to provide a reasonable return on the Newco Preferred Shares. More specifically, none of the purposes of the dividends is to reduce the fair market value or capital gain of any share, nor to increase the total cost amounts of any properties.

52. The purpose of the Proposed Transactions is not to shift income between provinces and any such shift of income between provinces will be incidental to the Proposed Transactions.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purposes of the Proposed Transactions and provided further that the Proposed Transactions are carried out as described above, we rule as follows:

A. Provided that Profitco has a legal obligation to pay interest on IB Loan and Profitco continues to hold the Newco Preferred Shares it acquires for the purpose of gaining or producing income from property, Profitco will be entitled, pursuant to paragraph 20(1)(c), to deduct, in computing its income for a taxation year (depending on the method regularly followed by Profitco in computing its income for the purposes of the Act), the lesser of: (a) the interest paid or payable on IB Loan in respect of that taxation year; and (b) a reasonable amount in respect thereof.

B. The provisions of subsections 15(1), 56(2), and 246(1) will not apply as a result of the Proposed Transactions in and by themselves.

C. No amount will be included in the income of Newco pursuant to section 9, paragraph 12(1)(c) or paragraph 12(1)(x) in respect of the contributions of capital made by Lossco to Newco as described in Paragraphs 26 and 30(a).

D. The dividends received by Profitco on the Newco Preferred Shares owned by it, as described in Paragraphs 27 and 30(b), will be taxable dividends that will be deductible pursuant to subsection 112(1) in computing the taxable income of Profitco for the taxation year in which the dividends are received, and for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3), or 112(2.4).

E. Part IV.1 and Part VI.1 will not apply to the dividends, described in Paragraphs 27 and 30(b), received by Profitco on the Newco Preferred Shares.

F. Provided that the only purpose of the payment and receipt of the dividends on the Newco Preferred Shares is as described under the heading “Purposes of the Proposed Transactions” above, the provisions of subsection 55(2) will not apply to the dividends referred to in Ruling D and received by Profitco on the Newco Preferred shares.

G. The settlement of the NIB Note and the IB Note, as described in Paragraph 30(f), will not give rise to a “forgiven amount” for purposes of section 80.

H. Provided that Profitco and Lossco file with the CRA a joint election in writing in prescribed manner that includes all the information described in paragraph (e) of the excluded interest definition in subsection 18.2(1), the interest payable by Profitco to Lossco on the IB Loan will be excluded interest.

I. Subsection 245(2) will not be applicable as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.

J. The general anti-avoidance provision of a province with which the Government of Canada has entered into a Tax Collection Agreement will not be applied, as a result of the Proposed Transactions, in and by themselves, to determine the tax consequences confirmed in the Rulings given, in respect of a taxation year in respect of which such Tax Collection Agreement is in effect.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions, as described in Paragraphs 15 to 25, are entered into on or before XXXXXXXXXX, and the Proposed Transactions related to the payment of interest and dividends and to the wind-up, as described in Paragraphs 26 to 31, are completed within the time described herein.

COMMENTS

Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

(a) the fair market value or adjusted cost base of any property or the paid-up capital of any shares referred to herein;

(b) the reasonableness or fair market value of any fees or expenditures referred to herein;

(c) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(d) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transactions;

(e) subject to Ruling J, the application or non-application of a general anti-avoidance provision of any province;

(f) the application of section 18.2, or any amendments thereto, to the Proposed Transactions; and

(g) any tax consequences relating to the Facts and Proposed Transactions described herein, other than those specifically described in the rulings given above.

Yours sincerely,

XXXXXXXXXX
for Director
Partnerships and Corporate Financing Section
Reorganizations Division
Income Tax Rulings Directorate