13 June 2000 External T.I. 2000-0027685 - Is purchase price adjustment interest

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 an adjustment to a purchase price constitutes interest

Position: Question of fact

Reasons: Would need to review specific agreement

XXXXXXXXXX 2000-002768
J. P. Dunn
June 13, 2000

Dear Sir:

Re: Purchase Price Adjustment as Interest

We are writing in response to your correspondence of May 16, 2000 in which you had requested the views of Canada Customs and Revenue Agency with respect to a situation in which an agreement for the purchase of equipment calls for payments to be made to the vendor/manufacturer of the equipment by the purchaser in advance of the delivery date and for interest to be computed on those payments for the benefit of the purchaser. It is your view that, notwithstanding that the agreement refers to the amounts as "interest", those amounts could not be considered as such because there is no money held by the vendor which "belongs to" or is "owed to" the purchaser.

Unfortunately, we are unable to provide you with a definite reply as the determination of whether such amounts could be characterized as "interest" for purposes of the Income Tax Act would require a review of the details of the particular transaction. The Agency would only be prepared to provide such assurance in the context of an advance income tax ruling.

Generally, the resolution of the question would depend, among other things, on whether the advance payments could be considered to be progress billings or whether they are deposits against the settlement of the final purchase price. Again, this determination could only be made after a full review of all of the facts pertaining to the actual transaction.

We trust that this is the information which you require.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch