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: Annual taxation of interest on stripped bonds
Position: Interest accrued to anniversary day of contract - clarification of definition of anniversary day
Reasons: In accordance with definition of anniversary day in ss 12(11)
XXXXXXXXXX 982629
Attention: XXXXXXXXXX J.P. Dunn
March 8, 1999
Dear Sirs:
Re: Annual Taxation of Stripped Bonds
We are writing in response to your correspondence of October 8, 1998in which you requested clarification of the provisions of the Income Tax Act (the “Act”) with respect to the annual accrual of income on stripped bonds or stripped coupons and, more particularly, with respect to the determination of the “anniversary day” of such instruments.
Because there is no actual interest received (or receivable) with respect to either a stripped bond or coupon, each of these instruments will be an “investment contract”, as that term is defined in subsection 12(11) of the Act. Subsection 12(4) of the Act requires that a taxpayer holding an interest in an investment contract on an “anniversary day” of that contract include in income for a taxation year the “interest” that accrued on the contract to that anniversary day. Although, as noted previously, the stripped bond or coupon does not pay actual interest, subsection 12(9) of the Act, in conjunction with section 7000 of the Income Tax Regulations, deems an amount calculated in accordance with those provisions to be interest for the purpose of determining the amount to be included in income with respect to the investment contract for a taxation year. Accordingly, the amount calculated in accordance with the provisions of section 7000 of the Income Tax Regulations is considered, for purposes of the Income Tax Act, to be interest accrued on the investment contract.
The “anniversary day” of an investment contract is defined in subsection 12(11) of the Act and includes the day prior to the day on which the contract was issued and that same date in each successive year. Further, the date upon which an investment contract is disposed of is an anniversary day of the contract. With respect to the definition of “anniversary day”, we would note that it is calculated with reference to the date on which the obligation was issued and not to the date on which it was purchased by the holder. Accordingly, each holder of an identical stripped bond or coupon would have the same anniversary date in relation to that bond or coupon regardless of when the individual holder purchased the investment.
We trust that this is the information which you require.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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