28 July 1994 External T.I. 9406155 - T5 Reporting

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:

Is a T-5 required for a stock link obligation that has a contingent payment based on the index of the TSE 100 stock index.

Position TAKEN:

1) No, if amount cannot be calculated.

Reasons FOR POSITION TAKEN:

Prescribed Debt Obligation under 7000(1)(d) and unable to apply the requirements of Reg 201(4) to unknown amount.

			940615

XXXXXXXXXX C. Tremblay

Attention: XXXXXXXXXX

July 28, 1994

Dear Sirs:

Re: Stocklink GIC

This is in reply to your letter of February 25, 1994, concerning the above-noted type of security, which was forwarded to us for reply by Mr. Rick Seguin.

The situation that is described appears to involve a series of actual proposed transactions. It is not our practice to give written opinions concerning proposed transactions, as indicated in Information Circular 70-6R2. 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.

Generally, where an amount of interest on a debt obligation to be paid in any taxation year is, under the terms and conditions of the obligation dependent on a contingency existing after the year, such an obligation is a prescribed debt obligation pursuant to paragraph 7000(1)(d) of the Income Tax Regulations (the "Regulations"). Subsection 7000(3) of the Regulations deems that any bonus or premium payable is interest under the debt obligation. Further, paragraph 7000(2)(d) of the Regulations states that the maximum amount of interest thereon that could be payable in respect of that year is deemed to accrue to the taxpayer for the purposes of subsection 12(9) of the Act.

Subsection 12(4) of the Act will require the taxpayer to include in his income the interest that accrued to the end of the anniversary date to the extent that the interest was not otherwise included in the taxpayer's income for the taxation year or any preceding taxation year.

Where the maximum amount that could be payable in respect of the year cannot reasonably be calculated, the interest amount is only included in income pursuant to paragraph 12(1)(c) of the Act in the year received or receivable. In such a situation, the information return (T-5) to be filed in respect of the amount of the interest that would be required by the taxpayer in respect of the investment contract is only required in the taxation year where the investor receives or is entitled to receive the interest amount.

The above comments are only expressions of opinion on the application of the Income Tax Act to the hypothetical example given and as such should not be construed as advance income tax rulings, nor are they binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch