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.
Principal Issues:
Can interest capitalized to CEE be renounced by a JEC
Position TAKEN:
If interest subject to a 21(2) election qualifies to be renounced under the requirements of 66(10.1) it may be renounced.
Reasons FOR POSITION TAKEN:
To be eligible for 21(2) interest must be incurred and in respect of CEE of the JEC.
XXXXXXXXXX 5-940585
Attention:
May 31, 1994
Dear Sirs:
Re: Renunciation of Deemed Canadian Exploration Expense
This is in reply to your letter of March 1, 1994, wherein you requested our interpretation of subsection 66(10.1) of the Income Tax Act concerning a hypothetical situation.
Unless otherwise stated, all references to statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended, consolidated to June 10, 1993 (the "Act").
In this regard we provide you with the following general comments which may be of assistance to you. Our comments, however, should not be construed as confirming the income tax consequences for a particular transaction.
Hypothetical Situation
1.A corporation ("JEC") is a "joint exploration corporation", within the meaning of paragraph 66(15)(g) of the Act.
2.JEC has received an interest-bearing loan with normal commercial terms from a "shareholder corporation" ("Shareholder Corporation"), within the meaning of paragraph 66(15)(i) of the Act, in respect of Canadian exploration expense ("CEE"), within the meaning of paragraph 66.1(6)(a) of the Act, incurred or to be incurred by JEC.
3.JEC uses the money loaned to it by the Shareholder Corporation to incur CEE and elects under subsection 21(2) of the Act not to deduct the interest payable on the loan that would otherwise have been deductible under paragraph 20(1)(c) of the Act, with the result that such interest amounts are deemed to be CEE incurred by JEC.
In our view, interest paid or payable by JEC in respect of the loan may be deemed to be Canadian exploration expense by virtue of an election under subsection 21(2) for the purpose of subsection 66(10.1) of the Act, provided the loan is not a transaction or one of a series of transactions to which the general anti-avoidance provisions of section 245 of the Act would apply and provided that all of the other requirements of subsection 21(2) of the Act are met.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.
Yours truly,
for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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