9 March 1992 External T.I. 9132765 F - Soft Costs

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.

5-913276

24(1)               J.P. Simard

(613) 957-8953

Attention:  19(1)

March 9, 1992

Dear Sirs:

Re:      Interest Paid or Payable in Relation to  Construction of a Building or Ownership of Land

This is in reply to your letter, dated November 21, 1991, whereby you request our views on the meaning of "interest" within subsection 18(3.2) of the Income Tax Act (the "Act").

You ask whether the Department would allow interest earned from customers' deposits on buildings under construction to be applied to reduce interest paid or payable on borrowed money used in respect of the construction of the same building for purposes of subsection 18(3.2) of the Act. You are of the view that allowing an offset of the interest expense subject to subsection 18(3.1) of the Act would be fair under the circumstances described in your letter.

Paragraph 18(3.1)(a) of the Act refers to any outlay or expense made or incurred by a taxpayer, other than an amount deductible by reason of paragraph 20(1)(a), (aa), or (gg) or subsection 20(29) that may reasonably be regarded as a cost attributable, namely, to the period of construction of a building. It clearly includes interest expenses. Furthermore, subsection 18(3.2) of the Act specifies that it includes, inter alia, the interest paid or payable by a taxpayer in respect of borrowed money that can reasonably be considered as interest on borrowed money used by the taxpayer in respect of the construction of a building, although it cannot be identified with a particular building or particular land.

Neither paragraph 18(3.1)(a), nor subsection 18(3.2) of the Act, allows for an offset of interest income, of any kind whatsoever, against interest paid or payable. When it has been intended to allow an offset, the Act clearly provides for it, as it does in subsection 18(2). You may also compare with the wording of the proposed paragraph 20(1)(qq) in the Draft Legislation on the Tax Treatment of Interest Expense, released by the Department of Finance on December 20, 1991.

Yours truly,

for DirectorManufacturing Industries, Partnershipsand Trusts DivisionRulings DirectorateLegislative and intergovernmentalAffairs Branch