3 March 1994 External T.I. 9402895 - INTEREST DEDUCTIBILITY

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

Principal Issues:

Whether interest is deductible on borrowed money used to repay an amount payable for property acquired for use in business

Position TAKEN:

yes

Reasons FOR POSITION TAKEN:

20(3) deems the borrowed money to be used for the same purpose as the original debt

LEGAL;

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

HAA NUMBER:

XXXXXXXXXX		940289

Attention: XXXXXXXXXX

March 3, 1994

Dear Sirs:

Re: Subsection 20(1)(c) of the Income Tax Act (the "Act")

This is in reply to your letter of January 31, 1994, wherein you requested our opinion with respect to the deductibility of interest expense in a situation where a corporation borrows money to repay an interest-free shareholder loan which was originally incurred in connection with the purchase of a building.

The situation outlined in your letter appears to relate to a factual transaction, and should therefore be discussed with your local district taxation office who has the responsibility of evaluating completed transactions. We will, however, provide the following general comments.

Generally, where a taxpayer uses borrowed money to pay an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business as described in subparagraph 20(1)(c)(ii) of the Act, the borrowed money is deemed, under subsection 20(3) of the Act, to have been used to acquire the property in respect of which the original amount was payable.

The above comments are an expression of opinion only and are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch