8 November 1989 Ministerial Correspondence 58674 F - Interest Deductibility

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.

November 8, 1989

Dear Sirs:

Re:  Interest Deductibility Asset Substitution

We are writing in reply to your letter of September 11, 1989, wherein you requested our opinion with respect to interest deductibility in a situation where the source of income would be exchanged for new income source.

We are unable to meet your request. Determination of the tax treatment of a specific situation can only be made upon a review of all the relevant facts and documentation in the context of an advance tax ruling request in accordance with Information Circular 70-6R. However our general views on interest deductibility, with respect to a situation where the income source has been changed, were set out in the 1984 Canadian Tax Foundation Conference Report. question 18 of the Round Table as follows:

     "Where one income is disposed of and the proceeds are used to acquire another income source, interest on the borrowed money that was used to acquire the first income source will continue to be deductible to the extent that the borrowing is reflected in the cost of the new income source."

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate