10 January 1992 External T.I. 912223A F - Refinancing Expenses

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.

ROUND TABLE - CGA - JANUARY 10, 1992

Officer: C. Thériault

File: 7-912223

QUESTION #18

In the context of applying paragraph 20(1)(e) of the Act with respect to financing expenses incurred to obtain financing spread out over a period (say over 10 years), would the Department apply subsection 18(9) of the Act to limit the expenses over that period instead of the statutory 5-year period specified by paragraph 20(1)(e) of the Act?

Furthermore, are the expenses incurred during a refinancing covered by paragraph 20(1)(e) of the Act or are they considered eligible capital property?

ANSWER

Financing expenses, which are reasonable under the circumstances, and are incurred to obtain financing spread out over 10 years and are deductible in computing the taxpayer's income by virtue of paragraph 20(1)(e) of the Act are not subject to the provisions of subsection 18(9) of the Act, provided the financing expenses are for services rendered.

The determination of the nature of an expense and whether it was incurred in the course of borrowing money is a question of fact. Such a determination can only be made after examining all the facts and circumstances of a specific situation. Expenses which do not qualify under paragraph 20(1)(e) of the Act because they were incurred in the course of a refinancing that does not involve borrowing money would, generally speaking, be considered eligible capital expenditures if they meet the definition provided in paragraph 14(5)(b) of the Act.