Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Did a plain vanilla swap agreement include the acquisition of a right?
Position: No
Reasons: Insufficient evidence to support this conclusion.
February 19, 2002
HEADQUARTERS HEADQUARTERS
Audit Directorate Income Tax Rulings
Directorate
Attn: Sharon Gulliver S. Tevlin
GAAR & Technical Support Section 957-3493
2002-012576
Strong Currency Loan Hedged by a Cross Currency Interest Rate Swap
Further to your memorandum of October 11, 2000, we have reviewed our position with respect to the acquisition of a right pursuant to the plain vanilla swap agreement as set in our memorandum dated July 13, 2001. As a result of this review, we have revised our position in the manner described below.
Revised Position
In our opinion, recharacterizing the periodic swap payments by XXXXXXXXXX to XXXXXXXXXX as interest cannot be supported. The relationship between the parties is not that of lender-borrower. No debt exists on which interest could be paid. The payments are computed with respect to a notional principal amount; however, in our view this is not a sufficient basis to recharacterize the legal relationship that existed between the parties. As a result, the periodic swap payments made by XXXXXXXXXX to XXXXXXXXXX are not subject to part XIII tax under paragraph 212(1)(b) of the Act.
The remaining discussion in our original memo relating to the possibility of the acquisition of a right should be deleted as we believe the evidence cannot support such an interpretation.
If you have any questions regarding the above, please contact the writer.
We trust these comments will be of assistance.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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