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 an underwriter issue a cheque for the proceeds of an issue net of his commission or must the cheques cross with the corporation ?
Position TAKEN:
Expense should be clearly identifiable and reasonable
Reasons FOR POSITION TAKEN:
Q2 at 1992 Round Table and general policy on claiming expenses.
942335
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
October 4, 1994
Dear Sirs:
Re: UNDERWRITER'S DISCOUNT
This is in reply to your letter of August 30, 1994, concerning question # 4, titled Underwriter's Discount.
Further to IT-341R2, a discount is not deductible under paragraph 20(1)(e) of the Act. However, as stated in question 2 of the 1992 Round Table at the 1992 Canadian Tax Foundation Conference, where an underwriter acts as principal in a transaction and there is clear evidence that the acquisition of shares, units, interests or debt obligations by the underwriter was for the purpose of making a public distribution thereof, any underwriting fees paid or payable for the services to be performed by the underwriter which are clearly costs associated with the issuance or sale are deductible under paragraph 20(1)(e) to the extent reasonable in the circumstances.
Whether the expenses related to the issuance of shares, units or debt obligations are deductible or not will depend on the specific facts of the situation. Generally, in a "bought" deal where the amount paid is clearly not a non-deductible discount, in order for an expense to be deductible under paragraph 20(1)(e) of the Act, cheques need not cross, however the expense must be reasonable and separately identified as an amount paid or payable for the underwriter's services.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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