CRA makes some additions in its new Folio on interest deductibility

Changes going from IT-533 to the new interest-deductibility Folio include:

• a reference to Midwest (respecting interest not having been deductible in any year due to the "in respect of" requirement) has been dropped
• an acknowledgement that Ludco indicates that an ancillary purpose to produce gross income is sufficient for deductibility, while CRA at the same time insists on a positive spread in the context of loss shifts
• an addition of a statement of the long-standing policy that interest on borrowings to fund PUC distributions is non-deductible unless the proceeds are used for an eligible purpose
• an expanded discussion of interest-free loans including a nostalgic reference to interest being denied in a cross-border contribution of capital in Mark Resources
• the section on loss shifts merely states that "the transactions that are undertaken must not be blatantly artificial," and does not require more explicitly that the amounts used are not in excess of what could be borrowed from the bank (see also 2014-0525441R3)
• an additional statement that "where accrued interest is added to the outstanding principal amount of an existing loan resulting in a new obligation or novation, an interest payment will not be considered to have been made."

Neal Armstrong.  Summaries of S3-F6-C1: "Interest Deductibility" under s. 20(1)(c), s. 9 – exempt receipts, s. 16(1), s. 248(1) -10/8 policy, s. 18(1)(b) – capital expenditure v. expense – financing expenses, s. 67.1(1).