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:
Discounts and premiums in secondary market
Position:
Income\capital depending on investors activities.
Reasons:
Previous opinions
XXXXXXXXXX 971349
June 19, 1997
Dear XXXXXXXXXX
Re: Capital Gain Vs. Income on the disposition of a Bond
This is in reply to your facsimile of May 21, 1997 in which you request our comments concerning a debt obligation acquired at a discount on the secondary market.
We offer the following general comments.
It is the Department's view that where a taxpayer holds an investment as a capital property (i.e. not a trader or dealer), the amount of any loss on a disposition caused by having paid a premium for the investment is capital loss. The fact that a particular investment is held for a short-term does not change the character of the premium for the purposes of the Act.
It is also our opinion that where the taxpayer holds the investment on income account any loss on a disposition caused by having paid a premium for the investment would be an income loss.
Where an investment was acquired at a discount in the secondary market, we are of the opinion that on a disposition of the obligation any gain on the difference between the cost of the obligation and the proceeds of disposition would represent an income\capital gain to the lender based on the same assumptions as applied above.
The foregoing comments are given in accordance with the practice referred to in paragraph 22 of Information Circular IC-70-6R3 and are not binding on Revenue Canada, Taxation.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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