23 June 2003 External T.I. 2003-0020985 - 153(1.1)

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 we may consider granting approval to a taxpayer to reduce the taxpayer's withholding taxes at source where he or she incurs interest expense on money borrowed for the purpose of earning income from a business or property?

Position:

We have discretion to grant such approval under subsection 153(1.1). However, each case must be examined individually.

Reasons: As stated above.

2003-002098
XXXXXXXXXX Daniel Wong
(613) 954-4949
June 23, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Allowance for Deduction at Source Form T1213

This is in reply to your facsimile of May 28, 2003 wherein you advised that an employee is contemplating borrowing money from a financial institution for the purpose of earning income from a business or property. You requested our opinion as to the proper procedure that the employee would have to follow in order to obtain approval from the Canada Customs and Revenue Agency (the "CCRA") to reduce his or her withholding taxes at source, which reduction will be attributable to his or her interest expense incurred on the borrowed money.

Our Comments

In your letter, you outlined what appears to be an actual fact situation related to transactions and events which have taken place. The review of such situations is generally the responsibility of the local taxation services offices and, as outlined in paragraph 22 of Information Circular 70-6R5, it is not our practice to provide specific opinions on factual situations otherwise than in the context of an advance income tax ruling. In any event, a request cannot be considered for a ruling when the transactions are completed or where the issues involved are primarily questions of fact. Nevertheless, we are prepared to provide the following comments that we hope will be of assistance to you.

Paragraph 153(1)(a) of the Act requires that every person paying, inter alia, salary, wages or other remuneration shall deduct or withhold from the payment an amount determined in accordance with the prescribed rules and remit that amount to the Receiver General at the prescribed time. The prescribed amount and the prescribed time are set out in Part I of the Income Tax Regulations. However, the Minister of National Revenue ("Minister") has discretion under subsection 153(1.1) of the Act to reduce that amount to a lesser amount where the Minister is satisfied that the deducting or withholding of that amount would cause undue hardship.

One of the situations where the CCRA may consider granting approval to a taxpayer to reduce his or her withholding taxes at source is where the taxpayer incurs interest expense on money borrowed for the purpose of earning income from a business or property. However, in order for the CCRA to consider and determine the taxpayer's request regarding his or her interest expense under subsection 153(1.1), the taxpayer will have to complete form T1213 (a copy is attached) and send the completed form with all the supporting documents to the Client Services Division of the tax services office responsible for the taxpayer, which documents will include at least the following:

? A copy of documents from the lending institution or investment firm that identify the purpose and amount of the loan.

? A statement stating the interest payments to be made by the taxpayer in the year.

? Where a limited partnership tax shelter is involved, a letter from the limited partnership tax shelter to confirm its activity.

These comments are provided in accordance with paragraph 22 of Information Circular 70-6R5.

Yours truly,

David Palamar
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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