Deemed Loan

"Canco wholly owns a Barbados subsidiary (“Barbco”), which has a non-interest-bearing loan (\"Loan 1\") owing to Canco. In addition to earning interest on term deposits, Barbco also holds a loan (\"Loan 2\") owing to it by an arm's length U.S. borrower (USco) in the same principal amount as for Loan 1 and which, like Loan 1, has been outstanding for more than one year. The interest rate charged on Loan 2 is less than a reasonable rate within the meaning of s. 17(1.1)(c).\n\nCRA indicated that, assuming it was reasonable to conclude that Loan 2 was made by Barbco to USco and permitted to remain outstanding because Canco had made Loan 1 to Barbco, s. 17(1) would impute interest on a deemed loan (the “Deemed Loan”) equal in amount to Loan 2, in addition to imputing interest on Loan 1."