15 November 1999 External T.I. 9926245 - FINANCING EXPENSES

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: Expenses regarding financing

Position: general comments

Reasons: should be a ruling

XXXXXXXXXX 992624
B. Kerr
Attention: XXXXXXXXXX

November 15, 1999

Dear Sirs:

Re: Paragraph 20(1)(e) - Expenses regarding Financing

This is in response to your letter of September 30, 1999, wherein you requested our views on whether certain costs incurred by a corporate taxpayer would be deductible under paragraph 20(1)(e) of the Income Tax Act (the "Act").

You described a situation involving a corporation ("Purchaseco") that wishes to have its shares listed on a prescribed stock exchange. However, in order to comply with the applicable provincial law, the Purchaseco must first take-over a public corporation ("Targetco"). Purchaseco will offer the shareholders of Targetco shares of Purchaseco in exchange for their Targetco shares. The take-over bid is subject to Purchaseco acquiring at least 75% of the shares of Targetco. Purchaseco will incur approximately $100,000 in costs relating to this transaction. You have asked whether these costs would be deductible under paragraph 20(1)(e) of the Act.

Our Comments

The situation outlined in your letter involves an actual fact situation relating to a proposed transaction. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular IC-70-6R3 dated December 30, 1996, issued by Revenue Canada. However, we can offer the following general comments.

Although paragraph 20(1)(e) of the Act generally provides that a taxpayer can deduct an amount for certain expenses that are incurred in the course of an issuance or sale of shares of the capital stock of a corporation by the corporation, it is our view that in the situation described, the expenses would be incurred in the course of an acquisition of property rather than the issuance of shares. Accordingly, such expenses would normally be considered part of the cost of the acquired property and not deductible under paragraph 20(1)(e).

We trust that these comments will be of assistance.

Yours truly,

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