31 May 1994 External T.I. 9413305 - PREMIUM ON PURCHASE OF A DEBT

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:

Premium paid on purchase of a capital debt

Position TAKEN:

Not deductible - Capital Loss on disposition

Reasons FOR POSITION TAKEN:

Law

		941330
XXXXXXXXXX	M. Cooke

Attention: XXXXXXXXXX

May 31, 1994

Dear Sirs:

Re: Premium on Purchase of a Debt Obligation

This is in reply to your letter of May 17, 1994, in which you describe a situation where a taxpayer purchased a debt obligation on the open market and paid a premium over its face amount.

In your letter you have outlined a fact situation related to a past transaction. The review of such transactions falls within the responsibility of District Taxation Offices. We do, however, offer the following general comments.

It is the Department's view that where a taxpayer holds an investment as a capital property (ie: not a trader or dealer), the amount of any loss on a disposition caused by having paid a premium for the investment is a capital loss. The fact that a particular investment is held for a short-term does not change the character of the premium for the purposes of the Act.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, and are not binding on the Department.

Yours truly,

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