CRA denied interest expense where a premium was received on extending notes’ maturity

Rather than issuing fresh notes, a company obtained the noteholders’ agreement to extend the current notes’ maturity, and received a significant premium given that the notes' stipulated interest rate was now higher than prevailing yields.

The Directorate did not see anything in this being a reopening rather than a new issuance to change its position in S3-F6-C1, para. 1.96 that “the interest expense will be reduced over the life of the [re-opened] debt with reference to the amount of the premium.” The Directorate also stated (in this 2015 Internal Interpretation) that if the premium was not taxable over time in this manner, the applicable fraction of the premium “could” be included in the company’s income as an eligible capital amount.

Neal Armstrong. Summaries of 11 September 2015 Internal T.I. 2015-0586301I7 under s. 20(1)(c) and s. 14(5) – cumulative eligible capital – E.