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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Discussion of the application of paragraph 7000(1)(c) of the Regulations to Guaranteed Investment Certificates (GICs).
Position TAKEN: General comments provided.
Reasons FOR POSITION TAKEN: N/A
XXXXXXXXXX 2001-009509
G. Moore
December 7, 2001
Dear XXXXXXXXXX:
Re: Interest Income on Guaranteed Investment Certificates (GICs)
This is in reply to your letter of June 14, 2001, regarding accrued interest on a GIC.
You are requesting our views on the calculation of accrued interest on a GIC for income tax purposes. The example you provide is a GIC with a three year term where the interest rate in the first year is 3%, 4.75% in the second year and 6% in the third. In particular, you are asking for an explanation of the application of section 7000 of the Income Tax Regulations (the "Regulations") to such investments. In addition, you are also enquiring about the amount of accrued interest that would have to be reported for income tax purposes if the owner of such an investment dies between the investment's anniversary dates.
As the general rule, interest income must be included in an individual's income for tax purposes when it is received or receivable (pursuant to paragraph 12(1)(c) of the Income Tax Act (the "Act")). However, commencing in 1990, individuals are required to report accrued interest income annually, from interest in investment contracts, on the anniversary day of the contract pursuant to subsection 12(4) of the Act. Where, however, interest income does not accrue at a constant rate on a debt obligation, as is the case in your example, special rules contained in Regulation 7000 and subsection 12(9), can result in a deemed calculation of accrued interest for the purposes of subsection 12(4). This deemed accrued interest is essentially interest calculated on a yield to maturity basis.
If the debt obligation is held to maturity, the total interest actually paid on the investment and the total interest reported for income tax purposes will be the same. Where the obligation is not held to maturity or if the taxpayer dies before maturity of the obligation, it is possible that interest income reported for income tax purposes will exceed the interest income actually paid. In such cases the excess interest income reported for tax purposes can be deducted under subsection 20(21) of the Act.
Finally, we wish to note that the aforementioned deemed accrued interest calculations apply to all prescribed debt obligations, regardless of the issuer.
We trust that these comments will be of assistance.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content