CRA’s Acceptance Of "Triggering Events"

Article by Sheldon Vanderkooy, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Taxation - April 2005.

Under the withholding tax exemption provision in subparagraph 212(1)(b)(vii) of the Act, the lender may require early repayment of the debt in the event of a failure or default under the terms of the debt. However, there are numerous occasions in which the parties will agree to require early repayment of all or a portion of the debt, but do not wish there to be a default, as a default will typically accelerate all of the debt and have other consequences, including causing cross defaults on other indebtedness of the borrower. This article addresses the Canada Revenue Agency (the CRA) practices allowing the use of "triggering events" to provide for potential prepayment of the debt within 5 years, without the borrower necessarily defaulting under the terms of the debt.