2016-0645521I7 90(6) & sale of creditor affiliate

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the exception in 90(8)(a) would apply where the "creditor affiliate" is sold for cash consideration before the 2-year time limit?

Position: No

Reasons: 90(8)(a) requires a repayment of the debt.

Author: Grégoire, Sylvain

Section: 90(6); 90(8)(a); 90(14)

                                                                                                                                              August 4, 2016

Ms. Chantal Tubie                                                                                                                 HEADQUARTERS
Senior Technical Specialist                                                                                                   Income Tax Rulings
International and Large Business Directorate                                                                       Directorate
International Tax Division                                                                                                      Sylvain Grégoire
International Advisory Services Section (East)
344 Slater Street, 6th Floor, Minto Place
Ottawa ON  K1A 0L5                                                                                                            2016-064552

Upstream Loan Rules – Sale of Creditor Affiliate

This is in reply to your correspondence of May 2, 2016, wherein you requested our comments as to whether a taxpayer resident in Canada would have an income inclusion pursuant to subsection 90(6) if it transfers the shares of a foreign affiliate to a non-arm’s length purchaser in a case where the foreign affiliate ceases to be a “creditor affiliate”, within the meaning of that subsection, before the expiration of the two year time limit referred to in paragraph 90(8)(a) and the upstream loan remains outstanding after that time limit.

All statutory references herein are to the Income Tax Act.


For illustrative purposes, we will use the following assumed facts:

•     A non-resident corporation (Foreign Parent) owns all the issued and outstanding shares of a corporation resident in Canada (Canco) and another non-resident corporation (SisterCo).

•     Canco owns all the issued and outstanding shares of another non-resident corporation (FA).

•     In 2013, FA makes a loan to SisterCo.

•     Before the expiration of the two year time limit specified in paragraph 90(8)(a), Canco sells its shares of FA to Foreign Parent for cash consideration.

•     The loan remains outstanding for more than two years.

Our comments

Pursuant to paragraph 90(8)(a), subsection 90(6) does not apply to an upstream loan that is repaid within two years of the day it was made, provided the repayment is not made as part of a series of loans or other transactions and repayments.

It is our view that the sale of FA by Canco in this fact pattern would not give rise to a repayment of the loan it made to SisterCo and, since the loan remains outstanding for more than two years, subsection 90(6) would apply. The fact that FA is no longer a “creditor affiliate” of Canco at the two year time limit is not relevant as the legislation tests the status of the lender as a “creditor affiliate” only at the time the loan is made. On the other hand, the deduction available under subsection 90(14) is not dependent on FA being a “creditor affiliate” at the time of repayment. Thus, in our view, when the loan is finally repaid a deduction will be available to Canco in the taxation year of repayment, provided the repayment is not made as part of a series of loans or other transactions and repayments.


For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca.

We trust these comments will be of assistance, and thank you for your enquiry.


Dave Beaulne, CPA, CA
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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