CRA indicates that interest on money borrowed by parent for use in connection with a triangular amalgamation to redeem preferred shares issued by Target can be deductible

In a triangular amalgamation, the proceeds of a third party loan are used by ParentCo to redeem preferred shares issued by TargetCo as part of the transaction.

CRA responded that interest on the borrowed money would be deductible under s. 20(1)(c), to the extent that the borrowed amount did not exceed the capital of the shares, computed prior to the redemption of such shares, and provided that the capital replaced by the borrowing was previously used for eligible purposes. The interest rate also would be required to be reasonable.

Neal Armstrong. Summary of 27 November 2018 CTF Roundtable, Q.13 under s. 20(1)(c)(i).