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.
5-960038
XXXXXXXXXX J. Teixeira
(613) 957-8953
Attention: XXXXXXXXXX
March 18, 1996
Dear Sirs:
Re: Deductibility of interest on debt
This is in reply to your letter of December 21, 1995 in which you requested our opinion on whether interest borrowed by a corporation to reduce its stated capital would be deductible by the corporation pursuant to paragraph 20(1)(c) of the Income Tax Act (the "Act") in computing its income from a business or property.
The situation outlined in your letter appears to relate to contemplated transactions involving specific taxpayers. As mentioned in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, it is not the practice of this Department to provide opinions with respect to proposed transactions other than in the form of advance income tax rulings. In the case of completed transactions, the tax consequences are best determined by our relevant Tax Services Office in the course of a tax audit. However, we are prepared to provide you with the following general comments.
The Minister of Finance tabled in the House of Commons on June 2, 1987, and revised subsequently, proposed legislation that would confirm the administrative treatment of Revenue Canada (the "Department") with respect to the deductibility of interest on borrowings. It is the Department's administrative practice that an amount paid in a particular taxation year or payable in respect of such year by a corporation (depending upon the method regularly followed by the corporation in computing its income for the purposes of the Act) to the extent that such amount is reasonable, pursuant to a legal obligation to pay interest on an amount borrowed that is used to return capital to a shareholder will be deductible by the corporation pursuant to paragraph 20(1)(c) of the Act to the extent that such capital was
(a) used by the corporation for the purpose of earning income;
(b)not used by the corporation to acquire property the income from which is exempt; or
(c)not used by the corporation to acquire a life insurance policy.
The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.
Yours truly,
for Director
Reorganization and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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