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: Whether amount for interest expense disallowed in the year accrued can be deducted subsequently for year paid.
Position: No.
Reasons: As held in Barbican Properties, where the taxpayer computes income on the accrual basis, if amount is not payable in the year (because of an unsatisfied contingency that permits deferral of payment), no deduction is permitted under 20(1)(c) since there is no amount payable in respect of the year pursuant to a legal obligation to pay; when actually paid, the amount of interest is not an amount payable "in respect of the year".
TEI Conference 1997 Round Table
December 9, 1997
QUESTION VIII
In the decision in Barbican Properties, 97 DTC 5008, the deferred interest payments were determined to be non-deductible on two grounds: (i) the expense was not payable in the year pursuant to a legal obligation (a requirement under paragraph 20(1)(c) of the Income Tax Act (the "Act")); and ii) paragraph 18(1)(e) of the Act denies a deduction for contingent amounts. In factual situations similar to that in Barbican, will Revenue Canada permit an amount disallowed in the year accrued to be deducted subsequently in the year paid?
DEPARTMENT'S RESPONSE
There is no deduction under paragraph 20(1)(c) of the Act in these circumstances. The deduction under paragraph 20(1)(c) of the Act is limited, where the taxpayer computes income on the accrual basis, to an amount "payable in respect of the year". Where the interest accrues in the year but there is no payment required until a subsequent year, the provision does not permit a taxpayer using the accrual method a deduction for the year the amount is paid.
Prepared by: Patricia Spice
Date: November 13, 1997
File: 972967
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