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.
5-8807
QUESTION 17 INTEREST EXPENSE - LAND DEVELOPMENT
A developer who acquired vacant land which was funded by a mortgage secured by the land subsequently incurs a bank loan to fund internal servicing of the land. The land is to be sold to an arm's length builder subsequent to completion of servicing. The interest in respect of the debt to fund the acquisition of the land is clearly subject to the provisions of Subsection 18(2) of the Act. Does the interest in respect of the debt used to fund the development of the land remain outside the ambit of Subsection 18(2) and accordingly remain deductible under paragraph 20(1)(c)?
DEPARTMENT'S POSITION
Subsection 18(2) of the Act is applicable to interest on debt relating to the acquisition of land. In our view the acquisition of land includes the addition of services. As such, the interest on funds borrowed to acquire the services is interest on debt relating to the acquisition of land and subject to the provisions of subsection 18(2) of the Act.
CTF Nov. 29/89 Section 22 D.Turner
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