A loss consolidation transaction can be undertaken to consolidate losses within a corporate group in circumstances where a straight-forward merger is not possible or desirable.  Although there are variations on these transactions, essentially a loss company in the group (lossco) lends money at interest to a profit company in the group (profitco), and profitco uses the borrowed funds to subscribe for shares of lossco.  In 2015-0589611E5, the CRA confirmed three policy points for rulings on these transactions: (1) lossco and profitco can be related even though not affiliated; (2) in the case of “upstream shareholding situations”, the CRA requires the parent (lossco) to have independent assets that can generate income to pay dividends on preferred shares held by the subsidiary (profitco); and (3) a representation relating to commercial borrowing capacity is usually sufficient, but in some cases, a signed letter from a director or other documentation is required where the loan is “substantial”.