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.
Principal Issues: Whether interest is deductible in situations described.
Position: Not possible to comment except in context of advance income tax ruling where all the facts are known.
Reasons: The application of paragraphs 20(1)(c) and 20(1)(d) depends on the facts of a specific situation. GAAR may apply.
XXXXXXXXXX 2006-018862
S. Chua LLB(Hons), FCA
March 30, 2007
Dear XXXXXXXXXX:
Re: Deductibility of interest
This is in response to your letter dated May 23, 2006 concerning deductibility of interest with respect to loan structure scenarios that involve interest payments by way of additional loans.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advanced income tax ruling request. For more information concerning advance income rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office with all the particular facts. However, we are prepared to provide the following general comments.
As you indicated, at the 2005 CALU Conference (2005-0116661C6) and in 2004-007034, we considered situations where a taxpayer used borrowed money to pay interest on an earlier loan. In our view, the situations you describe are not the same as or similar to those considered in those documents. Accordingly, we would not consider our general views in 2005-0116661C6 or 2004-007034, as applicable hereto. Furthermore, where a series of transactions is entered into merely to derive the benefit of an interest deduction, the general anti-avoidance rule may be relevant.
As you are aware, tax consequences surrounding the deductibility of interest depend on the facts of each situation. We would be prepared to deal conclusively with this issue in the context of an advance ruling request where all the facts are known.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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