Canada: Upstream loan repayment by 19 August | KPMG | GLOBAL

Canada: Multinationals to repay "grandfathered" upstream loans by 19 August

Canada: Upstream loan repayment by 19 August

Canadian multinationals need to repay "grandfathered" upstream loans by 19 August 2016 to avoid triggering income inclusion.


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Under the foreign affiliate (FA) rules enacted in 2013, qualifying debts that existed on 19 August 2011 ("grandfathered loans") and that were still outstanding on 19 August 2014 must be repaid by 19 August 2016, or else an income inclusion under subsection 90(6) is required.

If a grandfathered loan is not repaid by 19 August 2016, it must be included in the Canadian corporation's taxable income in the year that the loan was deemed to be made under subsection 90(6) (i.e., the taxation year that includes 20 August 2014). However, an offsetting deduction is available under subsection 90(9) equal to the total of certain surplus and adjust cost base amounts of the FA group that are available at the time the loan was deemed to be made.

KPMG observation

Because the 19 August 2016 deadline is fast approaching, taxpayers with grandfathered upstream loans need to consider repaying these loans before that date. However, the repayment cannot be part of a series of loans and repayments in order for it to be respected. If there are sufficient surplus and/or adjusted cost base (ACB) balances in the applicable FA group, an income inclusion may not be an issue, as it could be sheltered by an offsetting deduction.

Also, the foreign exchange relieving provisions only apply to grandfathered loans that are repaid by 19 August 2016.


Read an August 2016 report prepared by the KPMG member firm in Canada

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