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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
1992 Canadian Tax Foundation Conference
Author: T. Murphy November 25, 1992
Deductibility of Interest on Assumed Debt
Question 3
The Department has taken the position that interest paid on assumed debt is not deductible under paragraph 20(1)(c) as it does not represent interest paid on "borrowed money" (M.N.R. v. T. E. McCool, 49 DTC 700 (SCC)). However, in response to question 8 at the 1989 Corporate Management Tax Conference, the Department indicated that interest paid by a limited partner on debt assumed by the limited partner from the partnership will generally be deductible as provided for in paragraph 20(1)(c). What is the Department's position on the deductibility of interest on assumed indebtedness?
Answer 3
Subparagraph 20(1)(c)(i) permits a deduction for interest on "borrowed money", while subparagraph 20(1)(c)(ii) permits a deduction for interest on "an amount payable for property acquired." If a taxpayer assumes another person's indebtedness, it cannot be said that the taxpayer has "borrowed money". Consequently, subparagraph 20(1)(c)(i) is not applicable. If a taxpayer has assumed another person's indebtedness as part of the purchase price of an asset acquired by the taxpayer, then the taxpayer would have "an amount payable for property acquired" and thus, interest paid on that assumed indebtedness would be deductible to the extent provided for in subparagraph 20(1)(c)(ii).
In this regard we would point out that the 1989 Corporate Management Tax Conference, question 8, dealt with the situation where a limited partner assumed the partnership's debt obligation as part of the consideration given for the acquisition of his partnership interest.
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