9 June 1998 External T.I. 9813275 - IT-315 - INTEREST ON AMALGAMATION

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 the position expressed in IT-315 (interest deductibility subsequent to amalgamation) OK if shares were purchased from a related party?

Position: Yes

Reasons: OK as long as loan is genuine and shares acquired to earn income from business or property.

XXXXXXXXXX 							981327
								.P. Dunn
Attention:  XXXXXXXXXX 

June 9, 1998

Re: Interpretation Bulletin IT-315

We are writing in response to your correspondence of May 14, 1998 in which you had posed several questions regarding the position of the Department regarding interest expense incurred for the purpose of winding-up or amalgamation as expressed in Interpretation Bulletin IT-315 dated May 10, 1976.

More specifically, your question is whether the views of the Department as expressed in IT-315 concerning the deductibility of interest would remain applicable in a situation in which the borrowed funds were used to acquire shares of a corporation from a person with which the acquiring corporation did not deal at arm’s length.

We would confirm that the fact that the shares were purchased in a transaction not occurring at arm’s length would not, generally, affect the views in IT-315 concerning the deductibility of interest following an amalgamation or winding-up.

You have also requested our comments as to whether a delay in the timing between the acquisition of the particular shares and the amalgamation or wind-up would affect the deductibility of the interest expense on the funds borrowed to acquire the shares. We would note that the deductibility of the interest is premised solely on the basis of the conditions set out in paragraph 20(1)(c) of the Act, and, in particular, that the borrowed funds are used to earn income from a business or property.

We trust that our comments are of assistance.

Yours truly,

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