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: General comments re: Interest Deductibility
Position: General Comments
Reasons: Paragraph 20(1)(c) - Use of funds governs deductibility.
XXXXXXXXXX 2000-001735
J. P. Dunn
May 10, 2000
Dear XXXXXXXXXX:
Re: Interest Deductibility
We are writing in response to your correspondence of March 16, 2000 in which you had requested the views of Canada Customs and Revenue Agency with respect to interest deductibility.
Paragraph 20(1)(c) of the Income Tax Act governs the deductibility of interest expense for income tax purposes and, generally, that provision limits the deduction to interest on borrowed money which is used for the purpose of earning income from a business or from property. In other words, it is the direct use to which the borrowed money is applied which governs whether the interest is deductible for tax purposes.
For example, if funds are borrowed and used to buy income earning assets such as securities or a rental property, the interest is, generally, deductible. This is so regardless of the fact that the security for the loan of the borrowed funds is a personal residence or if it is another income earning asset such as a rental property. If, however, the borrowed funds are used to purchase a personal asset, such as a personal residence, the interest is not deductible. Again, it is not the nature of the security for the loan which determines the eligibility of the interest as a tax deductible item but rather it is the direct use to which those borrowed funds are put.
We trust that this is the information which you require.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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