19 April 1982 Income Tax Severed Letter A-6487 - [Reporting of Interest Income]

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 E. Salvatori 593-7295

April 19, 1982

Dear Sir:

This is to reply to your letter of March 25, 1982 concerning the reporting of interest income.

You wish to know whether a taxpayer changing from the cash to the receivable or accrual basis of reporting his interest income would report interest that became due prior to the year of change in the year it is actually received or in the year of change.

As indicated in paragraph 7 of Interpretation Bulletin IT-396 , to which you refer in your letter, interest income of a taxpayer (who had been reporting on the cash basis) which became due in a year prior to the year of change but which was not received (and therefore was not reported) is to be reported in the year it is actually received. For example, where a taxpayer has a five year obligation on which the interest was due but not received and in year 4 he changes to the accrual basis of reporting the interest income, the interest that became due prior to the year of change would be reported in the year the interest is received. Normally this would be in the year the obligation matures but could be in a subsequent year if for some reason the interest is not received until that subsequent year. In the year of change, the taxpayer would report only the interest income that accrued in that year.

It furthermore follows from the comments in paragraphs 6 and 9 of interpretation Bulletin IT-284R that interest not due but which accrued, on an obligation owned by the taxpayer reporting on the cash basis, prior to the year of change to the accrual method is also to be reported in the year it is actually received. In the case of interest income of a taxpayer changing from the cash to the receivable basis in respect of an obligation on which the interest was not receivable until some future date, the interest would obviously not be taken into income until that future time.

We cannot express an opinion with regard to your company's five year compound G.I.C.'s since you have not submitted a sample copy for our consideration. As to when interest income may be said to have accrued, we would draw your attention to paragraphs 12 and 13 of Interpretation Bulletin IT-396 .

We would also mention that resolution 9 of the Budget tabled November 12, 1981 calls for the inclusion in income on every third anniversary date of an obligation of the interest accrued thereon. Prescribed rules will set out the amount of interest deemed to be accrued for purposes of this proposed legislation.

Sincerely,

for Director Non-Corporate Rulings Division 12(1)(c)