2 August 1991 External T.I. 9034085 F - Large Corporations Tax - Definition of "Long-term Debt"

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.

August 2, 1991

Dear Sirs:

This is in reply to your letter dated November 23, 1990 with respect to the definition of "long-term debt" in subsection 181(1) of the Income Tax Act (the "Act"). All further references to statute are to the Act unless otherwise indicated.

Paragraph 181(1)(b) defines "long-term debt" for any corporation that is not a bank as "its subordinate indebtedness evidenced by obligations issued for a term of not less than 5 years". Your specific concern is whether debentures or guaranteed investment certificates ("GIC") issued for 5 years constitute "subordinate indebtedness" for a savings and mortgage or a trust company, respectively.

The Act does not define "subordinate indebtedness". Whether a particular debenture or GIC is considered to be subordinate indebtedness is a question of fact which can only be determined after a thorough examination of the terms and conditions of the particular debenture or GIC.

In the situation where a debenture represents a savings and mortgage company's primary source of borrowing which is not subordinate in any manner whatever to any other indebtedness of the financial institution, it is our view that such debenture would not be included as long-term debt for a savings and mortgage company when calculating its capital pursuant to subsection 181.3(3) or its investment allowance pursuant to subsection 181.3(4). The same consideration applies with respect to GIC issued by a trust company.

While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate