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.
May 4, 1989
HALIFAX DISTRICT OFFICE Attention: J.R. Miller
FROM HEAD OFFICE Leasing and Financing Section Kevin Donnelly (613)957-3500
Paragraph 20(1)(c) Interpretation Bulletin IT-445
We are writing in reply to your March 15, 1989 memorandum with respect to a letter from XXXX concerning paragraph 7 of IT-445 .
In answering XXXX we would avoid giving a definite answer to what appears to be a proposed transaction which should be dealt with on an advance ruling basis. By way of general comments, the policy in paragraph 7 of IT-445 is still applicable and the interest would generally be deductible both before and after the amalgamation. The dividends are included in income under Part I, despite the fact no Part I tax would be paid by virtue of subsection 112(1). In replying XXXX you may wish to quote the following statement made by the Department (R. D'Aurelio) at the 1988 Canadian Tax Foundation:
- Purchase of common shares - Our position remains as stated at the 1981 Tax Conference. Normally the Department considers interest costs in respect of funds borrowed to purchase common shares to be deductible on the basis that the potential return to the common shareholder may exceed his borrowing cost. It is conceivable that in certain fact situations it would be quite unreasonable to expect a potential return in excess of the borrowing costs related to such shares. We do not have any guidelines that might be used to isolate such situations and feel each situation must be dealt with on the basis of the facts involved.
We trust the foregoing is the information you require.
Chief Leasing & Financing Section Financial Industries Division Rulings Directorate
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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