CRA rulings on interest deductibility appear to relate to a share capital account distribution out of accumulated profits

CRA ruled that interest on money used by a subsidiary (shortly after an amalgamation) to make a share capital account distribution in cash to its parent would be deductible in computing its income provided that its property continued to be used by it for the purpose of gaining or producing income from its business. Although the ruling letter is heavily redacted, the lack of emphasis on the subsidiary’s PUC, the emphasis on the accounting treamtment of the transaction and a supplementary letter ruling on the dollar amount of the subsidiary’s accumulated profits at the time of the amalgamation suggest that the distribution was regarded as coming, at least to some extent, out of the subsidiary’s accumulated profits rather than PUC.

Neal Armstrong. Summary of 2017 Ruling 2017-0696791R3 F and 2017-0696792R3 F under s. 20(1)(c)(i) and of 2017 Ruling 2017-0696791R3 F under s. 51(1).