A corporation whose business it was to purchase and sell shares of private and public corporations, sold all its shares and used the proceeds to make secured loans to its shareholders at the prescribed interest rate and to third parties at the market rate, for initial terms of five years that would be renewable. Does the exception in s. 15(2.3) apply? In the course of a general response, CRA referred to its position in IT-442R, and stated:
[Y]ou assumed that the principal business of Corporation A is to lend money to its shareholders and to third parties. However, before accepting the validity of such an assumption, we wish to ask the following two questions. First, does Corporation A carry on a business of lending money on a regular basis? Second, was that business being carried on when the shareholder loans were made? Only when the shareholder loans are made while Corporation A is carrying on the ordinary business of lending money will subsection 15(2.3) apply.