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: Deductibility of Interest in a leveraged buy-out situation
Position: Generally deductible, but we would want to review any particular transaction before giving an unqualified opinion.
Reasons: IT-315
XXXXXXXXXX 991671
J. P. Dunn
Attention: XXXXXXXXXX
September 16, 1999
Dear Sirs:
Re: Interest Deductibility - Interpretation Bulletin IT-315
We are writing in response to your correspondence of June 8, 1999 concerning the deductibility of interest in circumstances similar to those described in Interpretation Bulletin IT-315 entitled "Interest Expense Incurred for the Purpose of Winding-Up or Amalgamation".
In the particular circumstance described in your enquiry, a corporation lends funds to an unrelated corporation which uses those funds to acquire the shares of the lender corporation from a party to which it (the acquiring corporation) is similarly unrelated. The borrower and lender corporations are subsequently amalgamated. Assuming that the acquired corporation had itself borrowed the loaned funds, and such loan remains outstanding subsequent to the amalgamation, you have enquired whether the interest on such funds would continue to be deductible to the amalgamated corporation in accordance with the position of the Department as outlined in the aforementioned interpretation bulletin.
In our view, the net result of these transactions is identical to the situation in which the purchaser corporation, rather than the acquired corporation, had borrowed the funds from the initial lender and used those funds to acquire the subject shares. Accordingly, the Department would, in the absence of reviewing a specific transaction, generally agree that the interest on the initial loan would continue to be deductible to the amalgamated corporation.
We trust that this is the information which you require
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
??
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...cont'd
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