CRA confirms consequences of debenture interest suspension where there is no suspension of due dates

A corporation which suspended interest payments on its debenture during the year is described as issuing T5 slips for "all amounts due and payable in the year including unpaid interest."  If this in fact is what happened, CRA is correct that individuals reporting on a receivable basis would be required to include the full year's interest in their income (but with there being a potential doubtful or bad deduction available under s. 20(1)(l) or (p)).  However if, as is commonly the case for subordinated debentures, there was a right or requirement to suspend the due date for the interest payments (in order to protect more senior debt), then the suspended accrued interest would only be required to be included in income to the extent it was covered by the anniversary date rule in s. 12(4).

Neal Armstrong.  Summary of 20 November 2012 T.I. 2012-0449671E5 under s. 12(4).