2 March 1990 Administrative Letter 32886 F - Change of Investment from Interest-Bearing to Interest-Free

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.

March 2, 1990

Dear Sirs:

Re:  Advance Income Tax Ruling Request  24(1)

We are writing in reply to your letter of December 11, 1989, wherein you requested an advance income tax ruling with respect to 

24(1)

We are unable to provide the requested advance income tax ruling because your submission did not include all of the material referred to in paragraphs 3, 6, 14, 15 and 16 of Information Circular 70-6R, which set out the specific submissions for an advance income tax ruling application.

Although we are unable to respond in the form of an advance income tax ruling, your letter provided sufficient information for us to ascertain that, in our view, there would be tax consequences to  24(1) as explained below, arising as a result of entering into an arrangement such as the one which you described, which were not anticipate in your letter and which we would confirm (in the form of a negative ruling) if you were to submit a complete advance income tax ruling request.

In our view, the change of a savings account or other investment from interest-bearing to interest-free would be so fundamental to the investor's economic interest that it would precipitate a disposition of property for the purpose of paragraph 54(c) of the Income Tax Act (the "Act"). This view is also expressed in paragraph 7 of Interpretation Bulletin IT-448.  As a result of the disposition of the interest-bearing investment and acquisition of the interest-free investment, paragraph 7000(1)(a) of the Income Tax Regulations and subsections 12(3) or 12(4) together with subsection 12(9) of the Act would, in our view, be applicable to the interest-free investment, and would operate to deem an amount to accrue to the investor as interest on the interest-free investment, which amount would be included in the investor's income for tax purposes.

Our opinion is provided in accordance with the practice described in paragraph 24 of Information Circular 70-6R.  Your deposit will be returned to you separately.  We enclose a copy of Information Circular 70-6R and Interpretation Bulletin IT-488 for your information.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate

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