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 on Funds borrowed to settle debts related to a terminated business. Payment is made subsequent to the termination of the business.
Position: General Comments
Reasons: Subsection 20.1(2) will deem the amount to continue to be used for the purpose of earning income from the business.
XXXXXXXXXX 2000-001859
J. P. Dunn
May 25, 2000
Dear Sirs:
Re: Interest Deductibility
We are writing in response to your correspondence of April 2, 2000 in which you had requested the views of Canada Customs and Revenue Agency with respect to the deductibility of interest on funds borrowed to pay expenses related to a terminated business.
Subsection 20.1(2) of the Act deals with situations in which borrowed money which was used for the purpose of earning income from a business ceases to be so used because that business has been sold or terminated at some time after 1993 but the borrowed funds remain outstanding. Generally, the effect of this provision is to deem the borrowed money to continue to be used for the purpose of earning income from that business. Because of this deeming provision, the interest continues to qualify for a deduction pursuant to paragraph 20(1)(c) of the Act notwithstanding that the actual source of the business income has been disposed of. The amount of the borrowed funds on which interest continues to qualify for a deduction because of this provision will depend on whether any property was used in the business and the fair market value of that property at the time of the business cessation.
Further, paragraph 20.1(2)(d) of the Act deems the business to continue to have fiscal periods subsequent to the time of the actual cessation of the business which fiscal periods are deemed to coincide with the taxation year of the taxpayer.
We trust that this is the information which you require.
for Director
Financial Industries Division
Income Tax Rulings Directorate
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