7 July 1996 Income Tax Severed Letter 9614773 - Early repayment of debt and withholding tax exemption

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:

Whether a bonus paid on early repayment of a debenture qualifies for the exemption under 212(1)(b)(vii)

POSITION:

Yes

REASONS:

The payment qualifies under the provisions of 18(9.1) and consequently is deemed by paragraph (e) to be a payment of interest. Since the payment is payable under the debenture, it will be considered to be "interest payable" for purposes of 212(1)(b)(vii).

XXXXXXXXXX 961477

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs.

Re: XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above noted taxpayer.

To the best of your knowledge, none of the issues raised in the present request have been or are being considered by a District Taxation Office or Taxation Center in connection with a tax return already filed. Furthermore, none of the issues raised in the present request are under objection or in discussion with an official of Revenue Canada. Our understanding of the facts and proposed transactions is as follows:

Facts

1. XXXXXXXXXX is a public corporation and a taxable Canadian corporation within the meaning of subsection 89(1) of the Income Tax Act (Canada) ("Act").

2. XXXXXXXXXX is a resident of Canada for the purposes of the Act.

3. XXXXXXXXXX federal corporate account number is XXXXXXXXXX and its filing district is XXXXXXXXXX

4. XXXXXXXXXX outstanding indebtedness includes the XXXXXXXXXX % Debentures due in XXXXXXXXXX which are held primarily by persons who are non-residents of Canada and who deal at arm's length with XXXXXXXXXX for purposes of the Act. It is represented that the interest payable on the Debentures qualifies for the withholding tax exemption provided for in subparagraph 212(1)(b)(vi) of the Act.

5. XXXXXXXXXX

6. XXXXXXXXXX

Proposed Transaction

7. XXXXXXXXXX proposes to use XXXXXXXXXX to redeem the Debentures at the stipulated amount of XXXXXXXXXX% of the principal amount.

Ruling

Provided the above statements of facts and proposed transactions constitute complete and accurate disclosure of all the relevant facts and proposed transactions, we rule as follows:

A. To the extent that the amount paid by XXXXXXXXXX which is in excess of the principal amount of the Debenture (the "Bonus") can reasonably be considered to relate to, and does not exceed the value at that time of an amount that but for the repayment of the Debenture would have been paid or payable by XXXXXXXXXX as interest on the Debenture for a taxation year ending after that time, the payment of the Bonus will be subject to the provisions of subsection 18(9.1) of the Act and paragraph 18(9.1)(e) of the Act will accordingly deem the Bonus to be paid by XXXXXXXXXX and received by the holders of the Debentures as interest payable on the debt obligation for purposes of subparagraph 212(1)(b)(vii) of the Act.

The above ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 issued on September 28, 1990, and is binding on Revenue Canada, Taxation, provided that the proposed transaction is completed before XXXXXXXXXX The above ruling is based on the Act in its present form and does not take into account any proposed amendments thereto.

Except as expressly stated herein, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transaction. Specifically, our ruling does not confirm in any way the eligibility for the exemption from withholding tax, contained in subparagraph 212(1)(b)(vii) of the Act, of any interest paid to the holders of the Debentures.

Yours truly,

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