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2014 Ruling 2014-0518451R3- Loss consolidation-- summary under Paragraph 111(1)(a) Summary Under Tax Topics- Income Tax Act- Section 111- Subsection 111(1)- Paragraph 111(1)(a) losses transferred to new "Aco" which is wound-up into profitco – but borrowing capacity rep of Lossco not Aco/ provincial GAAR ruling/ cashless un-wind Overview Loan 2 (in step 3 below) is being made by Lossco (the wholly-owned loss subsidiary of Parent) to Aco (so as to generate losses in Aco for later transfer under s. 88(1.1) to Opco), instead of being made directly to Opco, "to ensure that Opco, which is a public corporation, does not incur debt in order to implement the loss utilization. ...

. … [The] trust structures designed to purposely invoke attribution pursuant to subsection 75(2), with a view to avoiding the payment of tax on extracted corporate dividends …typically involves two Canadian corporations and a trust that acquires shares in one of the corporations ("Corp A"). ...

. …. If, in the case described, there in fact is an allocation of capital gains of the SEC to its partners, we believe it would be difficult to maintain that they do not retain their character in the hands of the latter, including the Limited Partner.... ...

. … Our conclusion would be the same if the transactions respecting a freeze of Opco in order to introduce Nephew were part of the series of transactions that included the deemed dividend received by Holdco as a result of the redemption of the Class "D" shares of the capital stock of Opco held by Holdco, as Nephew and Nephew Inc. were related to Holdco, the dividend recipient, by virtue of subparagraphs 251(2)(b)(iii) and 251(2)(c)(ii), respectively. ...

. … Justice L'Heureux-Dubé seemed to suggest that Mara Properties stands for the proposition that subsection 88(1) deems the parent to have received property of the same character from its subsidiary upon the subsidiary's wind-up. ...

Proposed transactions The terms of the Notes A will be amended (but with no novation) to change the governing law and to add a right allowing the holder to exchange them for new Canadian-dollar interest-bearing demand notes ("Notes B"); and a similar exchange right into Canco1 Note B will be added to Canco1 Note A – with both exchange rights then being exercised by Canco3. ...

. … If the total of all the decreases exceeds the total of all the increases to the UCC of a class as of the end of a taxation year, subsection 13(1) provides that this excess shall be included in computing the taxpayer's income for the year. ...

(a)(i) of the "earnings" definition) – without duplication of the adjustments in 1 and 2. ...

. … [T]these entities have many characteristics in common with "limited liability companies" ("LLCs") that exist in the U.S., which are generally considered to be corporations for the purposes of the Act, but that they also have many characteristics in common with the various forms of partnerships.... ...

Response After summarizing the purpose requirement in Reg. 6205(2)(a)(i), and the requirement in Reg. 6205(2)(a)(i)(III) that each beneficiary not deal at arm's length with the Original Holder, and noting that each participating share would be required to satisfy Reg. 6205(1), and before noting the requirements of Reg. 6205(4)(c)(i) and (ii), CRA noted (Tax Interpretations translation) that, respecting the amalgamation, Reg. 6205(4)(c) " creates a presumption under which preferred shares issued by the New Corporation to each Original Holder qualify as a Prescribed Share. ...