31 October 1995 External T.I. 9526935 - SECTION 7000 OF THE REGULATIONS

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: T-5 and Section 7000 of the regulations

Position: T-5 required and based on 7000(2)(c) calculation

Reasons: Reg 201(4)

							952693
XXXXXXXXXX							C. Tremblay

Attention: XXXXXXXXXX

October 31, 1995

Dear Sirs:

Re: Section 7000 of the Income Tax Regulations (the "Regulations")

This is in reply to your facsimile letter of October 11, 1995, sent to the Winnipeg District Services Taxation Office, requesting that we confirm that the annual accrued interest of a "multi-rate" debt obligation to be reported on a T5 should be the annual yield on a blended-rate basis, as opposed to the nominal-rate of interest and that Section 7000 of the Regulations applies to all "multi-rate" debt obligations. You also requested our comments on the tax consequences of a taxpayer disposing of one of the debt securities you listed prior to maturity when the taxpayer had been reporting the yields as opposed to the nominal-rate of interest.

We have not reviewed any of the particular investment certificates mentioned, however, in our view, generally, paragraph 7000(1)(c) of the Regulations would apply to all "multi-rate" debt obligations if it can be determined at the time it was acquired that the maximum amount of interest payable thereon in a year after the time the taxpayer acquired the obligation is less than the maximum of interest payable thereon in a subsequent year. The accrued amount to be reported as contemplated by paragraph 7000(2)(c) of the Regulations would be the greater of the maximum amount of interest thereon in respect of that year and the maximum amount of interest that would be determined in respect thereof if interest thereon for that year were computed on a compound interest basis using the maximum of all rates each of which is a rate computed (A) in respect of each possible circumstance under which an interest of the taxpayer in the obligation could mature or be surrendered or retracted, and (B) using assumptions concerning the interest rate and compounding period that will result in a present value, at the date of issue of the obligation, of all the maximum payments thereunder, equal to its principal amount.

Since this may result in an over-accrual of interest, the deduction for the over-accrual interest can be taken pursuant to subsection 20(21) of the Act in the year of disposal, or in the year of maturity of the obligation, whichever occurs first.

The forgoing represents our general views with respect to the subject matter of your letter, however, the facts of a particular situation may result in a different conclusion. These comments are not rulings and in accordance with the guidelines set forth in Information Circular 70-6R2 they are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch