Not ignoring subsidiary debt for all TCP purposes can affect the TCP status of shares in a Canadian parent

A closely-held Canadian parent, whose shares are being tested as to whether they are taxable Canadian property (“TCP”), holds both debt and shares of a Canadian subsidiary. Assuming that, in this situation, “CRA’s approach…ignores the intercompany debt as an asset for the parent and as a liability for the subsidiary, but continues to recognize it in the calculation of the fair market value of the subsidiary’s equity,” then “this approach may…produce cases where an equity/debt capital structure of a subsidiary would result in the parent’s equity constituting TCP, where a 100% equity structure would otherwise not, and vice versa.”

Neal Armstrong. Summary of Jared A. Mackey, "Canada Revenue Agency Views on Taxable Canadian Property Determinations Involving Subsidiaries," Tax Topics (Wolters Kluwer), No. 2315, July 21, 2016 p. 1 under s. 248(1) – taxable Canadian property – para. (d).