Resident taxpayer owns 100% of CCPC (LTD). She also set up a US LLC (startup). CAD LTD loaned a substantial sum to US LLC. This was determined to be a loan to a related party (both LLC and LTD are owned and controlled by the same shareholder) but not a loan to a shareholder. LTD was charging LLC the prescribed rate of interest. Now, after a couple of year, the LLC is insolvent and cannot pay back the loan to the LTD.
Can the LTD just write off the loan? I don’t think there is a tax consequence for the shareholder since it wasn’t a loan to her personally. But who’s to say what the LLC did with the money? Even in an audit, I’m thinking the most CRA can want is proof that the LLC is insolvent, and they they can’t really audit a foreign entity. I’m not accusing her of anything and I have no reason to doubt her. Businesses fail all the time. My question is just about the tax treatment. It seems like an easy way to get money out of the country so I think I’m missing something here.