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.
R.B. Day
613) 957-2136 19(1)
August 8, 1989
19(1)
We are writing in reply to your letter of April 28, 1989, wherein you requested our views regarding the computation of a Cumulative Net Investment Loss ("CNIL") in the following situation.
Interest in money borrowed to purchase an income averaging annuity contract ("IAAC") prior to November 13, 1981, is considered to be borrowed for the purpose of earning income from property. It is deductible by the individual in computing his income under paragraph 20(1)(c) of the Income Tax Act. On the other hand, in computing his income for a taxation year, the taxpayer is required to include any amount received by him in the year as an annuity payment under paragraph 56(1)(d). This may, in your view, create an unfair situation whereby the interest is an investment expense subject to CNIL rules, but the annuity income, not being considered property income, is not considered investment income for CNIL purposes.
OUR COMMENTS
We agree with you that one interpretation of the definition of "investment income" for CNIL purposes would not include IAAC income reported under paragraph 56(1)(d) and that "investment expense" would include related interest deducted under paragraph 20(1)(c). However, it is our view that "investment expense" for CNIL purposes was not intended to include IAAC interest deductible under paragraph 20(1)(c) by reason of paragraph 18(11)(a).
As a result, until such time as a legislative amendment is made to clarify this situation, we would suggest that interest on funds borrowed to acquire an IAAC be claimed as an "other deduction" on line 232 of the T1 return rather than as "interest expense" on line 221 of the return.
The Department will be prepared to accept, on an administrative basis, the claiming of IAAC interest in this manner pending the appropriate legislative amendment.
Yours truly,
E.M. Wheeler for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
b.c.c. Pauline McNally Director Enquiries and Taxpayer Assistance Division
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