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: Mortgage interest deductibility - general comments
Position:
The direct use of borrowed funds is the test that predominates in determining the deductibility of the interest
Reasons: The Queen v. Bronfman Trust (87 DTC 5059),
XXXXXXXXXX
2002-012419
July 2, 2002
Dear XXXXXXXXXX:
Re: Mortgage Interest Deductibility
We are replying to your facsimile of February 19, 2002, in which you inquire whether interest on a mortgage may be deducted. In the facsimile, you are proposing to take out a mortgage secured by a duplex that you currently own.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. As stated in paragraph 22 of Information Circular 70-6R5, written opinions are not advance tax rulings and, accordingly not binding on the Agency. The following comments are, therefore, of a general nature only.
Generally, interest paid or payable in the year on borrowed money is deductible by virtue of paragraph 20(1)(c) of the Act if the borrowed money is used to produce income or to acquire property to produce such income. In our view, mortgage interest with respect to funds borrowed, using a principal residence as collateral and not directly used to produce income or acquire property to produce income would not be deductible for tax purposes. This view is supported by the Supreme Court of Canada decision in The Queen v. Bronfman Trust (87 DTC 5059), where the Court concluded that the direct use of the borrowed funds is the test that predominates in determining the deductibility of the interest.
However, we are currently in the process of reviewing our existing positions on interest deductibility subsequent to the recent decisions of the Supreme Court of Canada on interest deductibility. You may wish to contact us subsequent to the completion of our study this fall to confirm our positions at that time.
We trust these comments will be of assistance
S. Tevlin
For Director
Financial Industries Division
Income Tax Rulings Directorate
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