CRA finds that the s. 74.4(2)(e) deduction for interest/ dividends received applied where an individual made a B2B loan or pref investment via his corp to his wife’s corp

Mr. A lent $100,000 at 6% interest, paid annually, to his wholly owned corporation (Holdco A) which, in turn, lent those funds at the same interest rate and payment basis to a corporation (Opco B) wholly owned by his spouse (Ms. B). Under a variant of this scenario, the $100,000 was advanced by Mr. A to Holdco A and, in turn, by Holdco A to Opco B, as the subscription proceeds for non-voting preferred shares bearing a 6% non-cumulative dividend, paid annually, rather than as loans.

After noting that these transactions entailed an indirect loan or transfer made by Mr. A to Opco B so as to require the inclusion of imputed interest to Mr. A under s. 74.4(2)(b), CRA went on to state:

[I]t would be reasonable to regard the return received by Mr. A from Holdco A as coming within subparagraphs 74.4(2)(e) and (f), insofar as it would be reasonable to consider that it is derived indirectly from the loan or transfer made by Holdco A to Opco B. This would be the case where Opco B pays a 6% return to Holdco A and Holdco A pays a 6% return to Mr. A, in respect of each of the transactions constituting the indirect loan or transfer.

In other words, there would be no net inclusion to Mr. A under s. 74.4(2) assuming that the prescribed rate did not exceed 6%.

In a further scenario, Opco B used funds derived from its operating retained earnings to make a non-interest-bearing loan to Holdco A. CRA stated:

Our Directorate’s long-standing position is not to apply section 74.4 to a transfer or loan made by one corporation to another, out of the equity of the former, unless it can be shown that an individual has, indirectly, through a trust or otherwise, transferred or loaned property to the corporation, or that [the B2B rule in] subsection 74.5(6) applies.

Neal Armstrong. Summaries of 2 April 2026 External T.I. 2025-1085691E5 F under s. 74.4(2) and s. 74.4(2)(e).