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.
Peter Lee (613) 957-2745
December 15, 1988
Dear Sir:
Re: XXXX Interest Deductibility
Further to our letter of November 16, 1988 (the "Letter") and the telephone conversation with you on December 7, 1988, we are writing in reply to your November 25, 1988 request for amendments to the Letter. This letter cancels and replaces the Letter.
We are replying to your letters of July 28, 1988, September 26, 1988 and November 4, 1988 wherein you requested our opinion with respect to the deductibility of interest on money borrowed by XXXX to pay its shareholders a dividend. As requested we will respond to your ruling request of July 28, 1988, with respect to XXXX proposed issue of XXXX under a separate cover.
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:
XXXX
Opinion 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 a Notice of Ways and Means Motion dated September 29, 1988 (the "Second Notice"). The stated intention of the Notice and the Second Notice was to amend the Act so as to confirm the current administrative practice of Revenue Canada, Taxation with respect to the deductibility of interest.
In our opinion, the XXXX incurred by XXXX as referred to in 4 and 5 above would, to the extent that the accumulated profits as described in 6 above 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), 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 current administrative practice of Revenue Canada, Taxation and under the Notice and the Second Notice. Accordingly in our opinion, provided XXXX has a legal obligation to pay interest on the XXXXXXXX, the interest paid 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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1988
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1988
Email this Content