CRA will entertain ruling requests to consider when a “right to reduce” arises under a Plan of Arrangement

A “right to reduce” is defined in s. 143.4(1) as “a right to reduce or eliminate an amount in respect of an expenditure at any time, including, for greater certainty, a right to reduce that is contingent upon the occurrence of an event, or in any other way contingent, if it is reasonable to conclude, having regard to all the circumstances, that the right will become exercisable.”

2016-0628741I7 appeared to indicate that where, under a Plan of Arrangement, interest of a debtor will be forgiven, s. 143.4 will apply in the year the Plan is approved by the creditors to reduce the interest amount rather than in the subsequent year when the Plan is implemented. If CCAA procedures commence in Year 1, the creditors approve the Plan in Year 2, and the Plan is implemented in Year 3, when will a “right to reduce” arise for s. 143.4 purposes?

CRA indicated that when a right to reduce arises under s. 143.4(1) will require a determination of when the legal right, albeit contingent, arises, and whether it is reasonable to conclude that the right will be exercisable. In the case of an interest that is forgiven under a CCAA proceeding, this will include a review of the Plan of Arrangement and the terms of the contingencies contained in the Plan. CRA would be willing to review this issue in a ruling application, where it could review the terms of the Plan.

This seems to indicate that the answer is Year 2 or 3, depending in part on how big the contingencies are.

Neal Armstrong. Summary of 25 November 2021 CTF Roundtable, Q.6 under s. 143.4(1) - right to reduce.