Canco finances its US operations (held through USLLC) through a tower structure (with USLLP, at the top of the structure being held by Canco directly and through a wholly-owned subsidiary (Subco), and with USLLP holding Finance USLLC through a Nova Scotia LLC (NSULC).) Should the at-risk amount of Canco in USLLP be reduced by loans (not precisely described) emanating from a general 50-50 partnership between USLLC and a third party and lent in some manner into the tower structure? The Directorate responded:
[P]aragraph 96(2.2)(c) generally does not apply to amounts owing by a limited partner, or a person with whom the limited partner does not deal at arm's length, to a partnership, or to a person or partnership with whom the partnership does not deal at arm's length, to the extent that such amounts arise out of legitimate business transactions that are not related to the acquisition of an interest of the limited partner, and to the extent that the terms and conditions are consistent with the terms and conditions of normal business arrangements comparable to those between parties dealing at arm's length with each other.
…[I[t is a question of fact and law to determine whether General Partnership is related to Canco and Finance USLLC is related to USLP in respect of the XXXXXXXXXX loan and whether USco is related to Canco and Finance USLLC is related to USLP in respect of the XXXXXXXXXX loan. To the extent that these entities are related … subsection 96(2.2)(c) would not be applicable for the purpose of reducing Canco's at-risk amount to the extent that the various borrowings have a legitimate business purpose and are not related to the acquisition of Canco's interest in USLP.