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.
Principal Issues: Whether interest payable at prescribed rate deductible by borrower?
Position: Unlikely
Reasons: Insufficient facts and the general anti-avoidance rules may apply.
XXXXXXXXXX 2006-019962
S. Chua
March 29, 2007
Re: Interest Deductibility
This is in reply to your emails of July 31 and August 9, 2006 regarding interest deductibility. The situation you describe involves circular non-arm's length transactions regarding loans, contracts, shares and repayment (or forgiveness) of debt.
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 advanced income tax ruling request. For more information concerning advance income rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office with all the particular facts. However, we are prepared to provide the following general comments.
A number of tax consequences could arise in the situation you describe, including but not limited to non-deductibility of interest and a taxable benefit arising from a loan to a person connected to a shareholder. The application of the general anti-avoidance rule ("GAAR") would also be considered in the type of situation you describe. Whether or not GAAR would apply in a particular case would be dependent on the tax consequences otherwise determined and on the specific facts in the case. Where a series of transactions is entered into merely to derive the benefit of interest deduction or the avoidance of the debt forgiveness rules, GAAR may be relevant.
We trust that the above comments will be of assistance.
Yours truly,
Roberta Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
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, 2007
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, 2007
Email this Content