Income Tax Severed Letters - 2017-09-20

Ruling

2016 Ruling 2016-0680411R3 - Advance income tax ruling extension

Principal Issues: Request for extension of XXXXXXXXXX to implement transactions in ruling 2014-055678.

Position: Granted

Reasons: The request for the time extension is reasonable.

2016 Ruling 2016-0680421R3 - Advance income tax ruling extension

Principal Issues: Request for extension of XXXXXXXXXX to implement transactions in ruling 2013-050430.

Position: Granted

Reasons: The request for the time extension is reasonable.

Technical Interpretation - External

14 June 2017 External T.I. 2016-0666411E5 - Negative returns on investments

Unedited CRA Tags
9(1), 18(1)(a), (b)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Loans and Financing Charges
negative interest is deductible under s. 9 if there is a reasonable expectation of receiving (positive) interest
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii)
capital loss on loan with nil interest rate may be denied by s. 40(2)(g)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
negative interest not a contra to positive interest

Principal Issues: 1. In the scenarios described, how is a negative return on overnight cash deposits characterized? 2. How are losses on a negative yield bond reported?

Position: 1. Based on the information submitted for the hypothetical scenarios, the negative returns on the Deposits would be deductible in computing income under subsection 9(1). 2. If the bond is held on account of capital, the capital loss may be deemed to be nil pursuant to subparagraph 40(2)(g)(ii). If the bond is held on account of income and the limitation under paragraph 18(1)(a) does not apply, the loss is on account of income.

Reasons: 1. The negative return does not constitute interest as it is not compensation for the use of funds. However, in the scenario described, it is reasonable to consider that the negative return was incurred for the purposes of earning income. 2. See discussion.

Technical Interpretation - Internal

26 May 2016 Internal T.I. 2016-0628741I7 - Interaction of s. 80 and s. 143.4

Unedited CRA Tags
section 80; section 143.4; paragraph 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 80 - Subsection 80(2) - Paragraph 80(2)(a)
no settlement of debt under Plan before conditions precedent fulfilled
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
interest only deductible in the year paid or payable
Summary Under
Tax Topics - Income Tax Act - Section 143.4 - Subsection 143.4(1) - Right to reduce
right to reduce notwithstanding that conditions precedent to interest forgiveness not yet satisfied
Words and Phrases
exercisable
Summary Under
Tax Topics - Income Tax Act - Section 143.4 - Subsection 143.4(4)
s. 143.4(4) caused an immediate income inclusion of prior years’ interest that was to be forgiven at a later date under an approved Plan of Compromise

Principal Issues: 1. Whether a taxpayer's contingent right to reduce "Interest Debt" under a XXXXXXXXXX (the “Plan”) pursuant to XXXXXXXXXX, where the Plan was approved by XXXXXXXXXX, would result in the application of section 80 of the Act or would subsection 143.4(4) of the Act apply instead?

Position: Subsection 143.4(4) would apply.

Reasons: In order for section 80 to apply, the debt obligation must be "settled." In this case, the obligation is not settled because a number of conditions precedent set out in the Plan were not met by the end of XXXXXXXXXX. However, the right to reduce the Interest Debt would be considered a "right to reduce" since it may reasonably be concluded at the end of XXXXXXXXXX, having regard to the circumstances, that the right to reduce would become exercisable.