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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
payment of interest by way of a fixed no of shares exempt under 212(1)(b)(vii)
Position:
No
Reasons:
interest computed at least in part to a commodity
953004
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
January 18, 1996
Dear Sirs:
Re: Subparagraph 212(1)(b)(vii)
This is in reply to your letter of November 10, 1995 requesting our views on the application of subparagraph 212(1)(b)(vii) where interest on a debenture is paid by way of a fixed number of shares where the value of the common shares will not necessarily be equal to the stated interest obligation.
Although you have asked for our views on a hypothetical situation, it would appear that a proposed transaction by a particular taxpayer is involved. Thus this matter would be more appropriately the subject of an Advance Income Tax Ruling. We are, however, prepared to provide you some general comments.
Pursuant to the postamble following subparagraph 212(1)(b)(xii) of the Act, the withholding tax exemption in subparagraph 212(1)(b)(vii) of the Act is not applicable if interest "...is computed by reference to... commodity price...". In our view, the determination of whether a particular payment method is considered as a payment of interest can only be made after a review of the specific facts and supporting documentation of the particular indenture. Although a question of fact, in the situation you presented, it appears that the interest would be computed at least in part by reference to a commodity price.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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