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.
5-920040
24(1) Robert Gagnon
(613) 957-8953
Attention: 19(1)
May 1, 1992
Dear Sirs:
Re: Regulation 7000
This is in reply to your letter of December 23, 1991 wherein you requested confirmation of your interpretation of section 7000 of the Income Tax Regulations ("Regulations"). We apologize for the delay in replying.
Your request appear to relate to a specific proposed transaction and accordingly should be the subject of an advance ruling request. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments on the issues raised in your letter may be of assistance to you.
A prescribed debt obligation ("PDO") is a debt obligation of a type described in any of paragraphs 7000(1)(a) to (d) of the Regulations.
The type of debt obligation described in paragraph 7000(1)(c) of the Regulations is one in respect of which it can be determined at the time it was acquired, that the maximum amount of interest payable thereon in a year after the time the taxpayer acquired the obligation is less than the maximum of interest payable thereon in a subsequent year.
A debt obligation will not be a PDO pursuant to paragraph 7000(1)(c) if its terms do not provide for increasing interest payments at the time of the acquisition by the holder. A debt obligation will not be a PDO for a taxpayer under paragraph 7000(1)(c) if interest on the debt is payable according to the issuer's cash flows which are indeterminate at the time the taxpayer acquired the interest therein.
Paragraph 7000(1)(d) of the Regulations identifies a debt obligation whose terms provide that interest to be paid in respect of any taxation year is dependent upon a contingency existing after that year.
A debt obligation will not be a PDO under paragraph 7000(1)(d) if interest on the debt obligation in respect of any taxation year is under the debt's terms payable only to the extent of a percentage of the issuer's cash flow in the taxation year or its immediately preceding year. In such a case, the payment of interest is not dependent upon a contingency (existence of cash flow) existing after the taxation year.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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