Corporation A, an operating company, lent money to Corporation B, its holding company which Corporation B used to purchase a building. Corporation A then forgives the debt to Corporation B. CRA stated:
Even when a debt was acquired for the purpose of earning income from a business or property, subparagraph 69(1)(b)(i) presumes, except as expressly otherwise provided in the Act, that where a taxpayer disposes of anything to a person with whom the taxpayer was not dealing at arm's length for less than the fair market value thereof, the taxpayer shall be deemed to have received proceeds of disposition equal to that fair market value. ... As a result...the deemed proceeds of disposition would be the fair market value of the loan which could mean that no loss on the disposition of a debt would be allowed to the lender.