Principal Issues: 1- What is the meaning of the “lowest total principal amount” in clause (b)(i)(A) of the description of Variable A of the definition qualifying rent expense in subsection 125.7(1) of the Act and how it is determined when there is more than one debt obligation?
2. What is the meaning of “cost amount” of a qualifying property as used in clause (b)(i)(B) of the description of Variable A of the definition qualifying rent expense in subsection 125.7(1) of the Act? If the definition of “cost amount” in subsection 248(1) of the Act is applicable, then at what point in time should the cost be determined for depreciable and non-depreciable property?
3- Whether an eligible entity can claim interest paid on a line of credit, on a demand loan, on a forgivable loan or on a debt obligation used to finance major improvements on a qualifying property as qualifying rent expense?
4- How should interest be calculated under subparagraph (b)(i) of the description of Variable A of the definition qualifying rent expense in subsection 125.7(1) of the Act?
Position: 1- The lowest total principal amount represents the lowest cumulative outstanding principal amounts of all debt obligations secured by a mortgage or hypothec on the qualifying property at any time after the qualifying property was acquired.
2- The definition of cost amount in subsection 248(1) of the Act is applicable. Pursuant to that definition, the definitions for undepreciated capital cost (“UCC”) in subsection 13(21) of the Act and adjusted cost base (“ACB”) in section 54 of the Act are relevant. Since the cost amount (UCC and/or ACB) is determined at any time, and qualifying rent expense is to be computed in respect of a particular qualifying period, the cost amount for purposes of clause (B) must be determined for a particular qualifying period.
3- Interest paid on debt obligations secured by a mortgage or hypothec on a qualifying property may be qualifying rent expense if, among other conditions, the total amount of all these debt obligations does not exceed the lesser of the amount provided under clauses (b)(i)(A) and (b)(i)(B) of the definition qualifying rent expense. Generally, any interest paid on debt obligations used to finance major improvements after the qualifying property was originally acquired would not be included in the limit under clause (b)(i)(A) and, therefore, interest would be limited in that case.
4 - The method used to determine the amount of interest that is qualifying rent expense should be reasonable in the circumstances and supportable.
Reasons: See below
