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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
This is in reply to your letter of September 8, 1993, wherein you requested a technical interpretation regarding the refinancing of debt as it applies to a farmer filing on a cash basis under section 28 of the Income Tax Act. (the"Act").
The determination of whether a particular refinancing would be a repayment of the original debt obligation is a question of fact which can only be determined by an examination of the specific facts.
Where the facts indicate that the refinancing constitutes repayment and extinguishment of the original debt, the tax results will depend, in part, on the fair market value of the new debt. Generally, any arrears interest added to the new debt is considered to have been paid, to the extent of the fair market value of the new debt, prior to payment of principal, unless the facts indicate otherwise. The interest would then be deductible for the purposes of section 28 of the Act.
However, the provisions of section 80 will apply where the fair market value of the new debt obligation is less than the principal amount of the original debt obligation.
We trust the above comments may be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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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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