25 July 1990 Income Tax Severed Letter ACC9396 - Interest Income

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.

24(1)

                                                  901148
                                                  C.R. Bowen
                                                  (613) 957-2096

Attention 19(1)

JUNE 25 1990

Dear Sirs:

Re: Interest Income

We are writing in reply to your letters of March 7 and May 8, 1990 addressed to the Toronto District Office, which were forwarded to our office on June 13 for reply, wherein you requested our comments on the reporting of interest income. We apologize for the delay in responding to your letter.

Facts

Our understanding of the facts given to illustrate the issue is as follows:

A consumer signs an order to make a purchase of `goods from a Canadian manufacturer/retailer and pays a cash deposit which is not refundable after 3O days. The balance of the purchase price is due on or before the delivery of the goods. Until the date that the full payment is made and the sale completed, the vendor will invest the deposit received in monetary instruments such as T-Bills and term deposits. Part of the interest income earned by investing the funds is donated to environmental research and education. The balance of the amount reduces the final payment owing by the consumer at the time of delivery to the vendor.

Your Questions

1) Is it the consumer or the vendor who is responsible for reporting the interest income earned by the vendor as a result of investing the consumer's deposit?

2) Are manufacturers' rebates, such 85 those offered by auto and appliance retailers, required to be included in the income of the purchaser of such products?

Our Comments

While we are unable to provide confirmation of the income tax effects of the particular situation outlined in your letter, we can offer the following general comments related to the reporting of interest income earned on a deposit made by a consumer and of a manufacturer's rebate. For the purposes of our comments, we have taken the word "consumer" to mean an individual person subject to Canadian income taxes who is acquiring the property in question for his own personal use and who will not 1) be using the property in the course of carrying on a business, 2) be earning income, such as rental or leasing income, from that property or 3) be holding on to that property for the purpose of selling it at a profit. In addition, it is assumed that the individual is not an employee or shareholder of the retailer or manufacturer.

1) Where a consumer leaves a deposit with a retailer or manufacturer towards the purchase price of goods which are to be delivered at a later date, the consumer would not normally be legally entitled to any interest income earned by the vendor upon investing that deposit. Consequently, the entire amount of the interest income earned would be reported in the vendor's income for income tax purposes. Therefore, a reduction of the balance of the purchase price owing by the consumer equal to a portion of that interest income, will not be required to be included in the income of the consumer. On the other hand, if the wording in the agreement entered into between the consumer and the vendor indicates that the consumer has a legal right to either the gross or net interest income earned on his deposit, the consumer would be required to report this interest in his income for income tax purposes. If you have a particular fact situation which is of concern to you, you may wish to call your nearest District Office or to write to our office outlining the specific details of the arrangement.

2) A manufacturer's rebate received by a consumer on the sale price of merchandise acquired by the consumer should not be included in the income of the consumer for income tax purposes.

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 24 of Information Circular 70-6R dated December 18, 1978, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

We trust these comments will be of assistance.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch