FA makes a loan to Canco, its wholly-owning parent. Canco then sells its interest in FA to a third party, but due to foreign tax and other regulatory concerns, Canco does not repay the loan. The loan then is forgiven. Would the forgiveness satisfy the repayment condition in ss. 90(8) and 90(14)? CRA responded:
Consistent with…2015-0610621C6 and 2016-0645521I7…there has to be an actual repayment of the loan. Therefore, a settlement or extinguishment of the loan as a result of forgiveness [is] not…a repayment… for the purposes of the upstream loan rules….
However, if relevant tax attributes described in subsection 90(9) exist at the time when the loan is made, Canco will be entitled to a deduction from income under subsection 90(9) to offset all or a portion of the original income inclusion under subsection 90(6) and subsequent income inclusions under subsection 90(12), provided that the tax attributes continue to be available at the relevant times for the purposes of subsection 90(9). Given that the loan in the situation described will never be repaid, it is possible for such inclusions and deductions in computing Canco’s income to continue indefinitely. …