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.
October 24, 1988 Peter Lee (613) 957-2745
Dear Sirs:
Re: XXXX Interest Deductibility
We are writing in reply to your letter of September 22, 1988 wherein you requested our opinion with respect to the deductibility of interest on money borrowed for the purpose of paying XXXX shareholder a dividend.
We understand that to the best of your knowledge and that of XXXX officials, none of the issues involved in this opinion request is being considered by a District Office or a Taxation Centre in connection with a tax return already filed, and none of the issues is under appeal or objection.
Our understanding of the facts and proposed transactions is as follows:
FACTS
XXXX
OPINIONS GIVEN
On June 2, 1987 the Minister of State for Finance tabled in the House of Commons a Notice of Ways and Means Motion (the "Notice") to amend the Act. The Notice was amended by the Press Release dated September 29, 1988 (the "Release"). The stated intention of the Notice and the Release was to amend the Act so as to confirm the administrative practice of Revenue Canada, Taxation as it existed prior to January 9, 1987.
In our opinion, the Loan incurred by XXXX as referred to in 4 to 7 above to the extent that the accumulated profits were used by XXXX for a qualifying purpose (that is, to earn income and not to acquire property the income from which is exempt or to acquire a life insurance policy), would constitute "borrowed money used for the purposes of earning income from a business or property" for the purposes of paragraph 20(1)(c) of the Act under the past and current administrative practice of Revenue Canada, Taxation and under the Notice and the Release. Accordingly in our opinion, provided XXXX has a legal obligation to pay interest on the Loan, the interest or payable thereon in respect of the year (depending upon the method regularly followed by XXXX in computing its income) would be deductible by XXXX pursuant to paragraph 20(1)(c) of the Act to the extent it is reasonable.
These opinions are not advance income tax rulings and accordingly are not binding on Revenue Canada, Taxation in accordance with Information Circular 70-6R.
Yours truly,
ORIGINAL SIGNED BY
C. B. DARLING
Director Financial Industries Division Rulings Directorate
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