30 June 1989 Income Tax Severed Letter AC32449 - Whether or not Discount on Issuance of a Zero-coupon Bond Would be Interest

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.

3-2449
                                                 Kevin J.
                                         Donnelly
                                                 613-957-3500

                 19(1)

June 30, 1989

Dear Sirs:

Re:  Advance Income Tax Ruling Request
       24(1)            Proposed Note Issue

We are writing in connection with your letters of April 25, 1898 and June 9, 1989 and your telephone discussions with Kevin Donnelly on May 11, 1989 and June 19, 1989.

On May 11, 1989 we advised you by telephone that the Department was prepared to issue a ruling, either favourable or unfavourable, with respect to the application of subsection 16(3) and the issue of whether or not the discount on the issuance of a zero-coupon bond would be interest for purposes of the Act. This undertaking was given on condition the Department was provided with drafts of the actual documentation to be used with the debt issue. It was explained that this precise documentation was essential to our obtaining opinions from the Department of Justice and the Department of Finance.

Contrary to what was requested, your letter of June 9, 1989 provided us with "sample documentation" comprising

             24(1)

We wrote to you on December 16, 1988 in response to your letters of
October 14, 1988 and November 4, 1988 concerning the application of
subsection 16(3) to the discount on issuance of zero-coupon bonds.
We advised in that letter that the issue was under review and we
were unable to express what our future views might be on the
application of subsection 16(3) of the Act.  There has been no
change from the position stated in our December 16, 1988 letter. 
Consequently we are not prepared to take any position except in the
context of a ruling request and prepared to take any position
except in the context of a ruling request and actual draft
negotiated agreements.  We understand that this documentation does
not exist in the        24(1)          request as the parties
involved do not wish to incur documentation costs without first
having a ruling.  As such documentation is critical to our
valuation, we are unable to provide the rulings you have equested.

We are closing our file on your request and your deposit will be eturned separately. If the parties decide to proceed and provide us with the necessary documentation we would be pleased to reopen the file and give it priority consideration.

Yours truly,

Director Financial Industries Division Rulings Directorate