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.
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Attention: XXXXXXXXXX
Dear Sirs:
RE: Bonus on Debt Obligations
This is in reply to your letter of July 7, 1993, requesting our views on whether a bonus received on a particular guaranteed investment certificate ("GIC") is to be reported as a capital gain or as interest income by the investors.
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Our Comments:
As indicated in Information Circular 70-6R2, it is not our practice to give written opinions concerning proposed transactions. Should you wish to request an advance ruling on these or other transactions which may be proposed, please refer to Information Circular 70-6R2 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.
Where the terms and conditions of the interest on the debt obligation depend on a contingency existing after the year, paragraph 7000(1)(d) of the Income Tax Regulations (the "Regulations") would apply to cause the debt obligation to become a prescribed debt obligation and the deemed accrual rules pursuant to subsection 12(9) of the Act would apply. Furthermore, subsection 7000(3) of the Regulations would deem that any bonus payable under a debt obligation to be interest.
We trust our comments will be of assistance to you
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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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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