Intercompany Revolving Loan Agreement Template for Canada

An Intercompany Revolving Loan Agreement is a legal contract that formalizes lending arrangements between related corporate entities within the same corporate group in Canada. This flexible financing instrument allows one group entity to provide ongoing funding support to another through a revolving credit facility, enabling multiple borrowings and repayments up to a predetermined maximum amount over the agreement's term.

When do you need this document?

You need an Intercompany Revolving Loan Agreement when your corporate group requires formalized internal financing arrangements that provide ongoing access to funds. This document is essential when a parent company, subsidiary, or sister company has excess cash flow and another group entity needs regular or seasonal funding support. It's particularly important when your group operates across multiple jurisdictions, as Canadian tax authorities closely scrutinize intercompany transactions for transfer pricing compliance. You should also use this agreement when establishing long-term funding relationships that require flexibility in borrowing amounts and timing, or when your group's financing needs fluctuate throughout business cycles.

Key legal considerations

The agreement must address several critical legal elements to ensure enforceability and regulatory compliance. Interest rate provisions must comply with Criminal Code Section 347's maximum effective annual rate requirements to avoid usury violations. The document should include detailed definitions of financial terms, default events, and remedies available to the lender. Security provisions, if applicable, must be properly documented and registered according to provincial personal property security legislation. Corporate authorization clauses are essential to confirm that both parties have proper authority to enter the agreement under their respective incorporating legislation. The agreement should also address acceleration clauses, assignment restrictions, and governing law provisions to ensure clarity in enforcement scenarios.

Legal requirements in Canada

Canadian law imposes specific requirements on intercompany lending arrangements that must be reflected in your agreement. Under the Income Tax Act, intercompany loans must meet arm's length pricing standards to avoid transfer pricing adjustments, requiring commercially reasonable interest rates and terms. Thin capitalization rules may limit the deductibility of interest payments if debt-to-equity ratios exceed prescribed thresholds. The Interest Act requires clear disclosure of interest calculation methods and payment terms, while the Bank Act provides guidance on lending practice standards even for non-bank corporate lenders. Corporate governance requirements under the Canada Business Corporations Act or relevant provincial corporations acts must be satisfied, including proper board resolutions and officer certifications. Additionally, withholding tax obligations may apply to interest payments between related entities, particularly in cross-border situations within corporate groups.