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.
M. S. Lalonde (613) 957-8959
October 30, 1986
Dear Sirs:
We are writing in reply to your letter of September 9, 1986 in which you have requested clarification on certain issues relative to Bankers' Acceptances ("BAs") as a result of the repeal of paragraphs 20(1)(h) and (i) of the Income Tax Act (the "Act") by 1984 c.45 of the Statutes of Canada. We apologize for the delay in replying.
We will deal with each issue in the same order that you have presented them.
1. "Borrowed money" as that term is defined in subsection 248(1) of the Act includes the proceeds to a taxpayer from the sale of a post-dated bill drawn by the taxpayer on a bank to which the Bank Act or the Quebec Savings Act applies. Accordingly, amounts paid or payable by a taxpayer as certification fees and other expenses incurred in the course of selling BAs will be deductible in the year provided the requirements of paragraph 20(1)(e) of the Act are otherwise satisfied.
Consideration will be given to revising Interpretation Bulletin IT-341R to reflect the above.
2. We confirm that each interest coupon attached to a BA constitutes interest on borrowed money and therefore is deductible to the drawer if the requirements of paragraph 20(1)(c) of the Act are met.
3. Where a BA is issued for a short term (i.e., less than one year), we are prepared to treat the discount as interest. Where a BA is issued for a longer term, generally it is our view that the discount would not be treated as interest. Where it would be considered as interest, simple interest only, at the rate established by the effective yield and applied to the issue price, would be allowable under paragraph 20(1)(c) of the Act on an annual basis to a taxpayer on the accrual method of accounting.
We trust that the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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