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:
Basis for 18(9.1) legislation
Position TAKEN:
To allow for deduction where interest would have been paid if debt had remained
Reasons FOR POSITION TAKEN:
Discussion with Finance
October 26, 1994
Appeals and Referrals Rulings Directorate
Division
L. C. Tremblay Financial Industries
Director Division
S. J. Tevlin
Attention: Joseph Lam (613 957-2746)
942587
Prepayment Penalty
We are writing in response to your memorandum of October 5, 1994 wherein you asked the following questions with respect to subsection 18(9.1) and subparagraph 20(1)(e)(ii.2) of the Act:
1."What is the specific type of transaction for which subsection 18(9.1) was enacted?
2.Why was the new subparagraph 20(1)(e)(ii.2) retroactive to 1988 whereas subsection 18(9.1) was retroactive to 1985 when their purposes appear to be similar?"
In this regard we offer the following comments.
1.It is our understanding that subsection 18(9.1) was originally intended as an alleviating measure for farmers who were prepaying their loans but were being denied a deduction for the portion of the prepayment that represented interest. However, when the legislation was introduced it was not restricted to farmers but covered situations where the penalty or bonus could be considered as a substitution for interest foregone by the lender if the principal of the debt had remained at its original amount until maturity.
2.Prior to the enactment of subparagraph 20(1)(e)(ii.2), paragraph 20(1)(e) was amended by 1988, c.55, s.12(2) applicable to expenses incurred after 1987 in respect of issuances, sales and borrowings occurring after 1987. As such, the Department of Finance did not wish to apply an earlier effective date in respect to the 1994 amendments which added subparagraphs (e)(ii.1) and (e)(ii.2).
We trust our comments will be of assistance to you.
R.S. Biscaro
Acting Director General
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1994
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1994
Email this Content