30 November 1995 Ruling 9608123 - LOSS CONSOLIDATION

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX

Principal Issues:

Loss Consolidation - Is interest on loan from sub to parent (where funds were received by sub from parent upon common share subscription) deductible to parent?

Position:

	Yes - subject to usual 20(1)(c) provisos (legal 	obligation, used to earn income, etc.)

Reasons:

See IC 88-2, Supplement 1, July 13, 1990 - example #5

XXXXXXXXXX							960812
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX

We are writing in response to your correspondence of XXXXXXXXXX wherein you had requested an advance income tax ruling on behalf XXXXXXXXXX. We also acknowledge the additional submissions provided and our (XXXXXXXXXX) telephone conversations with respect to this matter. In furtherance of this request, you have noted that,

(i) the tax account number of XXXXXXXXXX

(ii)the tax account number of XXXXXXXXXX

(iii)the corporations file their returns of income at the XXXXXXXXXX Taxation Centre and,

(iv)that, to the best of the knowledge of responsible officials of the corporations, none of the issues being considered in the context of this advance income tax ruling are being considered by a District Tax Services Office in connection with an income tax return previously filed nor has a Notice of Objection been filed with respect to any of those issues.

FACTS

1.XXXXXXXXXX was incorporated on XXXXXXXXXX and is governed by the provisions of XXXXXXXXXXis a "public corporation" and a "taxable Canadian corporation" within the meaning of those terms in subsection 89(1) of the Income Tax Act (the "Act).

XXXXXXXXXX

2.XXXXXXXXXX is a "public corporation" and a "taxable Canadian corporation within the meaning of those terms in subsection 89(1) of then Act.

3.XXXXXXXXXX a wholly owned subsidiary of

XXXXXXXXXX

The preference shares are voting, entitled to cumulative dividends and are redeemable at the option of the corporation.

4.XXXXXXXXXX was incorporated on XXXXXXXXXX and is governed by the

XXXXXXXXXX

5.At XXXXXXXXXX had accumulated "non capital losses", within the meaning of that term in subsection 111(8) of the Act, of $ XXXXXXXXXX

PROPOSED TRANSACTIONS

6.XXXXXXXXXX will borrow $XXXXXXXXXX from XXXXXXXXXX. The loan will bear interest at commercial rates and will be documented by an enforceable loan agreement. The amount to be borrowed is within the accepted commercial borrowing limit of XXXXXXXXXX independent of its relationship with XXXXXXXXXX.

7.XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of XXXXXXXXXX for aggregate consideration of $XXXXXXXXXX.

8.XXXXXXXXXX will enter into a binding agreement whereby XXXXXXXXXX will lend $XXXXXXXXXX on a demand loan basis. The loan will bear interest at a rate equal to XXXXXXXXXX and will be payable XXXXXXXXXX in arrears.

9.XXXXXXXXXX will utilize the funds borrowed from XXXXXXXXXX to repay the loan received from XXXXXXXXXX as described in paragraph 6, above.

PURPOSE OF THE PROPOSED TRANSACTIONS

The proposed transactions consist in a series of steps which will result in the consolidation of profits and losses within the related group of taxable Canadian corporations.

RULINGS PROVIDED

Provided that the preceding statements are accurate and complete and that the proposed transactions are carried out as described above, we confirm the following:

Provided that XXXXXXXXXX has a legal obligation to pay interest on the loan described in paragraph 8 of the Proposed Transactions and that the common shares of XXXXXXXXXX acquired by XXXXXXXXXX as described in paragraph 7 of the Proposed Transaction continue to be held for the purpose of gaining or producing income (other than income which would be exempt), XXXXXXXXXX will be entitled to deduct, in computing its income for a taxation year, the lesser of the interest paid or payable in respect of that taxation year or a reasonable amount in respect thereof pursuant to paragraph 20(1)(c) of the Act.

This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R2 issued by Revenue Canada on September 28, 1990 and is binding upon the Department provided that the proposed transactions are completed by XXXXXXXXXX. The ruling is based on the Act and the Income Tax Regulations in their present form and does not take into account the effects of any proposed amendments thereto.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch