CRA finds that discharge of a debt through its assumption denies a s. 20(1)(e)(v) deduction

The usual deduction by a taxpayer under s. 20(1)(v)(v) for its remaining unamortized debt issuance expenses when the debt is settled does not apply where such settlement occurs "as part of a series of borrowings or other transactions and repayments."

CRA considers that this exclusion applies where (i) the debt of the taxpayer is settled by the taxpayer transferring assets to a subsidiary in consideration inter alia for an assumption of the debt (with the taxpayer being released) – or (ii) where the debt is not assumed on the asset transfer and the taxpayer instead uses cash consideration received from the subsidiary (funded out of a borrowing by it) to discharge the debt. In the second situation, CRA considers that the subsidiary borrowing is a borrowing occurring as part of the series. It considers that in the first situation, the debt assumption is also caught, without indicating how the quoted word specifically apply.

Three summaries of questions posed at the October 2015 APFF Roundtable, including this one, along with translations of the full text of the preliminary CRA responses, have been uploaded. The other 21 responses will be translated and uploaded piecemeal over the next week or so.

Neal Armstrong. Q. 1 of 9 October APFF Roundtable under 2015 APFF Conference.