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 19, 1992
Calgary District Office Head Office
Financial Industries
Division
Attn: Dave Westgate J. Stalker
Large File Case Manager 957-9796
7-921982
Prepayment of Debt/ Redemption of Debt
We are writing in response to your round trip memorandum dated June 17, 1992 in respect of the application of subsection 18(9.1) to certain penalties or bonuses paid on the prepayment or early redemption of debt.
We have reviewed the information you have provided to us. Our general position is that a bonus or penalty payment paid on the early redemption of debentures could "...reasonably be considered to relate to ... an amount that, but for the reduction ..." as a result of payment of the bonus or penalty "... 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 the bonus would not be excluded under paragraph 18(9.1)(a) and that the tests in subparagraph 18(9.1)(f)(ii) are met, the bonus would be deductible under subsection 18(9.1) which would treat it as prepaid interest.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
It is our view that such a bonus can "reasonably be considered to relate to" interest that would have been paid for all those years that the obligation would have been outstanding if it had not been redeemed. Accordingly, 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, under the provisions of subsection 18(9). Note that the purpose tests in subclauses 18(9.1)(f)(ii)(A) and (B) must continue to be met in each year of the period of deduction.
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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