Failing to repay a grandfathered upstream loan by August 19, 2016 will, at best, require the Canadian corporate recipient to claim perennial reserves against inclusions based on its August 20, 2014 attributes

If an upstream loan that was made before August 20, 2011 is not repaid by the August 19, 2016 deadline for doing so, the Canadian-taxpayer recipient of the loan will be required to include its amount in income on August 20, 2014. If the taxpayer is a Canadian corporation, it will need to determine its surplus and basis attributes as at August 20, 2014, for purposes of any s. 90(9) reserve.

If these attributes as at August 20, 2014 are ultimately used to shelter any actual foreign affiliate dividend or other distribution, or are subsequently earmarked to shelter any other upstream loan, the Canadian corporation will lose its continued entitlement to the subsection 90(9) deduction and may find it necessary to actually repay the grandfathered upstream loan so as to instead claim a terminal deduction under subsection 90(14).

Neal Armstrong. Summaries of Geoffrey S. Turner, "Transitional Tax Treatment of Grandfathered Upstream Loans – Repayment Deadline Approaching," International Tax (Wolters Kluwer CCH), No. 88, June 2016, p. 7 under s. 90(9), s. 90(8)(a) and s. 39(2.1).