11 May 1998 External T.I. 9806915 - INTEREST DEDUCTIBILITY

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:

Enquiry seeking advice on the approach to take when transferring a debt (used for the purpose of acquiring investments), secured by a mortgage on a personal residence, where the personal residence is sold ?and the mortgage is settled? and a new home is subsequently purchased with new debt ?secured by a new mortgage?, in order to ensure that the interest paid on the new debt is deductible

Position TAKEN:

None. General comments given.

Reasons FOR POSITION TAKEN:

Owing to the fact that the author is seeking tax planning advice, our response was limited to very general comments concerning subsection 20(3) (money borrowed to repay borrowed money).

XXXXXXXXXX 		5-980691
P. Diguer

May 11, 1998 

Dear Sir/Madam

Re: Interest Deductibility

This is in reply to your letter dated March 12, 1998 in which you requested our views on the approach to take when selling your principal residence where the residence was used to secure a loan (used for the purpose of acquiring investments) and a new residence is subsequently purchased with new debt. In particular you wish to determine the most economic way to transfer the debt to your new residence in order to ensure its continued deductibility and are concerned with the delay between the date of the sale of your current residence and the date of the acquisition of your new residence. Accordingly, you ask that we resolve this issue.

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R3 dated December 30, 1996 (copy enclosed). This Directorate also provides technical interpretations of the various provisions of the of the Income Tax Act (Canada) (the “Act”) but we do not provide tax planning advice. As stated in paragraph 22 of IC-70-6R3, where the particular transactions are completed, the enquiry should be directed to the relevant tax services office. Nevertheless, we offer the following general comment in connection with your request which we hope is of assistance to you.

Generally, where a taxpayer uses borrowed money to pay an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business as described in subparagraph 20(1)(c)(ii) of the Act, the borrowed money is deemed, under subsection 20(3) of the Act, to have been used to acquire the property in respect of which the original amount was payable.

The foregoing represents our general views with respect to the subject matter of your letter. The foregoing opinions are not rulings and in accordance with the guidelines set out in IC 70-6R3 they are not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

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