CRA indicates it can choose under s. 118.1(17) which gifts to apply loanbacks

A corporation made charitable gifts in 2007, as well as in 2015 to 2017, to a private charitable foundation. Interest-bearing loans were made in 2012 and 2015, by the foundation to the corporation and persons not dealing at arm’s length with it, contrary to s. 118.1(16)(c)(ii).

S. 118.1(16) provided that the gift amounts were to be reduced by a loan made back to the corporation by the charity within the following 60 months – so that, for example, the 2007 gift amount could be reduced by the 2012 loanback amount. S. 118.1(17) provided an ordering rule whereby, if a loss amount “has been applied under [s. 118.1(16)]” to reduce a gift amount, it cannot be applied to reduce another gift amount.

The Directorate confirmed that since CRA in fact had not applied the 2012 loanback amount to reduce the 2007 gift amount (presumably, because of statute-barring), the 2012 loanback amount was available to be applied to reduce the subsequent gift amounts.

Neal Armstrong. Summary of 18 July 2022 Internal T.I. 2021-0921671I7 under s. 118.1(17).