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.
5-910483
Re: Technical Interpretation of the words, "bonds, debentures, notes or similar obligations" in section 204(e)(iii) of the Income Tax Act (the "Act")
This is in reply to your letter of February 11, 1991 requesting our interpretation confirming that bankers' acceptances come within the meaning of the phrase "bonds, debentures, notes or similar obligations of a corporation" with respect to subparagraph 204(e)(iii) of the Act. You have outlined the reasons for your view that they qualify under subparagraph 204(e)(iii) of the Act.
If a property is to qualify under subparagraph 204(e)(iii) of the Act, it must be a bond, debenture, note or similar obligation of a listed corporation that is not the employer or a corporation not at arm's length with the employer. That is, if the property is not a bond, debenture or note, it must be similar to a bond, debenture or note.
As we see it, bonds, debentures and notes are promises by the issuer of the document to pay a specified amount on the terms set forth in the document and, as such, evidence the indebtedness of the issuer vis-à-vis the person to whom the document is addressed. Banker's acceptances require the person to whom it is addressed to pay a specified amount to a specified person at a specified time. They are not evidence of indebtedness of the issuer. Technically a banker's acceptance is a bill of exchange; bonds, debentures and notes are not. Accordingly it cannot be said that banker's acceptance are obligations which are similar to bonds, debentures and notes and therefore it is our opinion that they do not qualify within subparagraph 204(e)(iii) of the Act.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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