Words and Phrases - "making of loan"

A corporation (NRO), wholly owned by a foreign corporation, that had elected to be a non-resident owned investment corporation, an interest-bearing debt (the “First Note”) of a taxable Canadian corporation that was a related corporation (the “Corporation”) as well as preferred shares of the Corporation that had been acquired as a result of converting interest on the First Note into such shares.

It was proposed that the NRO acquire, from a financial institution, a loan (the “Second Note”) that the financial institution had made to the Corporation.

The Directorate indicated that, assuming that the NRO had acquired the Second Note as an investment, which appeared to be the case, it could not be considered to be engaged in a principal business of lending money for purposes of s. (d)(i) of the NRO definition (the acquisition of the Second Note was not the making of a loan). Furthermore, if it had no activities other than simply holding the two notes and preferred shares of the corporation as long-term investments, it would not be considered to be trading in shares or notes for the purposes of s. (d)(ii) of the NRO definition.