Income Tax Severed Letters - 2018-07-11

Technical Interpretation - External

31 May 2018 External T.I. 2018-0755631E5 - Substitution of debt, paragraph 18(9.1)(a)

Unedited CRA Tags
18(9.1), 20(1)(e)
substituted loan exception in s. 18(9.1)(a) does not apply re a prepayment penalty incurred in refinancing with another arm’s length lender

Principal Issues: Whether replacing an old loan with a new loan from a different arm's-length creditor, to obtain more favourable rates, constitutes a substitution of a debt obligation for the purposes of paragraph 18(9.1)(a).

Position: Question of fact, but in the circumstances described, likely no.

Reasons: The CRA has previously taken the position that where an old debt is repaid and a new debt is obtained from a different arm’s length creditor, the transactions would generally not be considered as a substitution of debt.

11 April 2018 External T.I. 2017-0699751E5 - Deduction of legal expense

Unedited CRA Tags
8(1)(b), 6(1)(a)
CRA now accepts that legal expenses incurred to recover salary are deductible even if no right to the salary is established

Principal Issues: Several questions about the deductibility of legal expense under paragraph 8(1)(b) of the Act.

Position: See response.

Reasons: See response.