3 October 1996 External T.I. 9628745 - INTEREST

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:

Is Pre-judgement interest interest and is it deductible pursuant to 20(1)(c)

Position:

It is interest and question of fact whethor or not it meet criteria in 20(1)(c) and in particuler 20(1)(c)(ii)

Reasons:

XXXXXXXXXX							5-962874

Attention: XXXXXXXXXX

October 3, 1996

Dear Sirs:

Re: Subparagraph 20(1)(c) of the Income Tax Act

This is in reply to your letter of August 22, 1996 in which you request a technical interpretation with respect to the deductibility of interest paid pursuant to a Court Order in respect of a legal dispute pertaining to invoices associated with the construction of a capital asset.

The situation described in your letter is an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to your local District Tax Services Office. Consequently, we can only offer the following general comments.

In our opinion, where amounts have been classified by a Court, settlement agreement or other contract entered into by the parties to be pre-judgement interest and this pre-judgement interest reflects amounts paid in compensation for the retention of money owed to another, these amounts would be considered interest for purposes of the Income Tax Act (the "Act").

The determination of whether or not the interest would be deductible pursuant to paragraph 20(1)(c) and in particular subparagraph 20(1)(c)(ii) of the Act would be a question of fact that could only be determined after a review of the facts of the particular transaction.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate