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.
August 14, 1992
Calgary District Office Head Office
Financial Industries
Division
Attention: Sam Huda J. Stalker
Large File Case Manager 957-9796
- 7- 921593 24(1) Application of subsection 18(9.1)
We are responding to your memorandum of May 25, 1992 in respect of the application of subsection 18(9.1) to certain redemption premiums paid by SCL.
Facts
Our understanding of the facts is as follows:
24(1)
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
Issue
At issue are the classification of the bonus payments of 24(1) which 24(1) wishes to deduct under subsection 18(9.1), and the timing of their deductibility if subsection 18(9.1) applies.
District Office Opinion
As stated in your memorandum of May 25, 1992, your opinion is that the bonus is a capital payment and is not a payment in lieu of future interest payments for the purposes of subsection 18(9.1).
Taxpayer's Opinion
The taxpayer argues that subsection 18(9.1) allows a deduction of the bonus up to the amount of interest that would otherwise be payable in future years.
Our Opinion
In our opinion, based on our understanding of the facts as set out above, the bonus payments can "... reasonably be considered to relate to ... an amount that, but for the reduction ..." as a result of payment of the bonus "... would have been paid or payable by the taxpayer as interest on the debt obligation for a taxation year of the taxpayer ending after that time,..." as required by subsection 18(9.1). Accordingly, provided that:
- (i) the bonus can not be reasonably considered to be made in respect of the substitution or conversion of the debt obligation to another debt obligation or share, so that the payment is not excluded under paragraph 18(9.1)(a); and
- (ii) the tests in subparagraph 18(9.1)(f)(ii) are met;
the bonus would be deductible under subsection 18(9.1).
As the bonus is a penalty for redeeming the debentures 24(1) years prior to maturity, it is our view that the bonus can "reasonably be considered to relate to" interest that would have been paid for all those remaining years. Accordingly, under the provisions of subsection 18(9.1), the bonus should be deducted on a straight-line basis over the period during which, but for the repayment, the obligation would have remained outstanding; that is, from 24(1)
for Director
Financial Industries Division
Rulings Directorate
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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