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.
Prepared by: J. Stalker
May 4, 1992
1992 TEI Conference
Question 12 - Subsection 18(9.1)
Subsection 18(9.1) of the Act allows a deduction in a year for a penalty or bonus (not exceeding the amount of interest that would otherwise be payable on the debt obligation for that year) paid by the taxpayer by reason of the repayment of all or part of the principal of the debt obligation before its maturity.
If the amount of the bonus is equivalent to the amount of interest that would have been paid in a certain number of years which is less than the term of the debt obligation, would the bonus be deductible over that shorter period? For example, if a bonus of $X is paid on a debt obligation that still had 10 years to maturity immediately before the payment, and the bonus paid represents interest that would otherwise have been paid over 2 years, is the bonus deductible over 2 years?
Department's Response
It would be unlikely that a bonus paid on early repayment of a debt obligation could reasonably be considered to relate only to a certain year or years rather than the whole term of the debt obligation, even though the amount paid may be equivalent in dollar terms to the aggregate interest payments of those particular years. It is more likely that the bonus is a calculation of the compensation required by the creditor for interest foregone over the entire term of the debt obligation. Accordingly, the bonus should be deducted on a straight-line basis over the period during which the obligation is outstanding or would have remained outstanding but for the prepayment.
Leasing and Financing Section
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1992
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1992
Email this Content