Principal Issues: 1. Will the premium received on the re-opening of debt affect the interest deduction for the purposes of paragraph 20(1)(c)? 2. Can such premiums constitute eligible capital amounts?
Position: 1. In these circumstances, yes. The stipulated interest rate on the debt was in excess of a reasonable amount. The interest deduction should be reduced over the life of the debt with reference to the amount of the premium. 2. Yes, subject to the exclusions provided for in variable E, (a)(i)-(iii) and (b).
Reasons: 1. The premium was paid in exchange for a higher rate of interest, which served to adjust the overall yield to reflect the market yield offered on similar instruments. 2. The 2006 amendments to variable E in the definition of CEC removed the requirements for a disposition and mirror image test.