Cash pool utilization fees “may” be fully deductible

Aco and Bco have business-related aggregate bank overdrafts of $200,000, their sister, Cco has a cash balance of $50,000 with the same bank, the bank agrees to charge interest at X% only on the net balance of $150,000 owing by the group, and Cco charges a "financial services fee" to Aco and Bco of X% of $50,000 to recapture their interest savings.

CRA stated that there "are arguments" for Aco and Bco deducting the fees in full under s. 20(1)(e.1) – otherwise they should be deductible over five years under s. 20(1)(e).  X% was 10%, and CRA emphasized that such deductibility was subject to the reasonableness limitation in s. 67.

Neal Armstrong.  Summaries of 9 December 2013 T.I. 2013-0507931E5 F under s. 20(1)(e.1), s. 20(1)(e) and s. 18(1)(b) – capital expenditure v. expense – financing expenditures.