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.
1993 EDMONTON DISTRICT OFFICE INFORMATION SESSION
RE: Profit Participation / Interest
QUESTION #3
What is the Department's position in respect of profit participation under a "loan" agreement? Does it constitute interest?
RESPONSE #3
The Department's position was stated at the 1989 and 1992 Corporate Management Tax Conferences in respect of profit participation under a "loan" agreement and it remains unchanged. Payments made under a participating loan are deductible as interest under paragraph 20(1)(c) of the Act where the investment exhibits the characteristics of debt rather than equity. A participating payment will be considered to be interest provided that:
- the payment is limited to a stated percentage of the principal;
- the limiting percentage reflects commercial interest rates prevailing between arm's length parties at the time the loan is entered into; and
- no other facts indicate the presence of an equity investment.
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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