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.
Dear Sirs:
This is in reply to your letter dated July 26, 1989 asking for our comments on the above-noted subject in light of the Notice of Ways and Means Motion on interest deductibility (released September 29, 1988).
As noted in your letter, a representative of the Department dealt with this issue in response to a question posed during the 1989 Corporate Management Tax Conference. The response indicated that interest would be deductible by the partnership to the extent the capital had been used by the partnership for a qualifying purpose.
For interest deductibility purposes, the “capital” of the partnership is generally the partner's equity account immediately before the distribution is made. As noted in your letter, the equity account may decrease over time, depending on the fortunes of the partnership business, and may in fact decline to an amount that is less than the original capital contribution. To the extent that capital has “disappeared” in this manner, the capital of the partnership is correspondingly reduced for purposes of the interest deductibility rules.
Generally, the Department considers that capital should be determined in accordance with generally accepted accounting principles However, capital does not include any appraisal surplus arising in the capital account [for example, as a result of a transfer of property to the partnership under subsection 97(2) of the Income Tax Act (Canada)].
The comments expressed in this letter are of a general nature only and do not take into account considerations that might arise in the context of specific transactions or events. In accordance with Information Circular 70-6R, these comments do not constitute advance income tax rulings and consequently are not binding on the Department.
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, 1989
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, 1989
Email this Content