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: whether amendment to debt obligation providing that additional interest is payable if debt exceeds EBITDA by 3:1 will be offside 212(1)(b)(vii)
Position: unclear, however amendment may result in new debt obligation
Reasons: relevant information not provided - should be advance income tax ruling request
2002-017313
XXXXXXXXXX Denise Dalphy, LL.B.
(613) 941-1722
January 8, 2003
Dear XXXXXXXXXX:
Re: Postamble of Subparagraph 212(1)(b)(vii) of the Income Tax Act (the "Act")
We are writing in reply to your letter dated November 12, 2002 wherein you requested our views on the application of the postamble of subparagraph 212(1)(b)(vii) of the Act to a proposed amendment of a debt obligation that is being held in abeyance pending receipt of our response to your request.
Written confirmation of the consequences 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. Since it is our understanding that the situation that you described in your letter is actually proposed, it should be the subject of a request for an advance income tax ruling. Nonetheless, we shall provide some comments of a very general nature.
In our view, a loan agreement that contains a provision for increased payments to the lender that are based on the ratio of certain debt to EDITDA (earnings before interest, tax, depreciation, and amortization) of the borrower may fall within the ambit of the broad wording in the postamble of subparagraph 212(1)(b)(vii) of the Act. However, there may be situations where, in the context of an audit or an advance income tax ruling request, the provisions of a particular loan agreement and the circumstances of that borrower are such that subparagraph 212(1)(b)(vii) of the Act may not be applied.
Finally, whether or not an amendment to an agreement will result in a new agreement is a mixed question of fact and law, which can only be determined on the basis of a review of the terms of the agreement and the amendment as well as relevant caselaw.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
Steve Tevlin
Manager
Corporate Financing Section
Financial Industries Division
Income Tax Rulings Directorate
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