Canco indirectly distributed $10M of excess cash to its non-resident parent (NRco) in 2010 through a capital contribution by it to a new foreign subsidiary (FA) and a loan of the $10M by FA to Nrco (at an arm’s length interest rate). In order to unwind this upstream loan structure by the August 19, 2016 deadline for doing so, NRco will repay the $10M loan owing to FA, FA will use such cash repayment proceeds to pay a $10M dividend to Canco out of pre-acquisition surplus and Canco will make a fresh (direct) loan to NRco, and make a valid PLOI election under s. 15(2.11) in respect of that loan.
CRA confirmed that the new PLOI loan will not cause the old loan to be considered to have been “repaid…otherwise than as part of a series of loans or other transactions and repayments” as per s. 90(8)(a), so that a $10M income inclusion to Canco under the upstream loan rules will be avoided.