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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
ISSUES
Whether a deposit note that is a "prescribed debt obligation" described in paragraph 7000(1)(d), has a "maximum amount of interest" "that could be payable" in each of the five years of its term - the prescribed method of determining the deemed interest in accordance with paragraph 7000(2)(d) of the Regulations - for purposes of subsection 12(9) (and thus subsection 12(4)).
Position: No.
Reasons:
The method described in paragraph 7000(2)(d) when applied to the note does not result in any interest being included in income under subsection 12(4). Interest is included under paragraph 12(1)(c) when paid. No determination is made with respect to someone who sells the note prior to maturity.
XXXXXXXXXX 971975
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of XXXXXXXXXX and the Holder and further to our telephone conversations XXXXXXXXXX.
FACTS
1.The Holder is an individual residing at XXXXXXXXXX. She files her tax returns with the XXXXXXXXXX Centre Tax Services Office and the XXXXXXXXXX Taxation Centre. The Holder has applied to purchase Notes as further described below.
2. XXXXXXXXXX
XXXXXXXXXX files its returns with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
PROPOSED TRANSACTION
3.XXXXXXXXXX proposes to issue, or have an agent issue, to the Holder the Notes, the relevant terms of which are as follows:
(a)It is anticipated that the Notes will have a term of five years. The Notes will not be redeemable prior to the maturity date.
(b)No interest or other amount will be paid or payable by XXXXXXXXXX in respect of the Notes until the maturity date.
(c)There is no stipulated interest rate with respect to the Notes nor is there any guaranteed return.
(d)At maturity the Holder is entitled to receive, in addition to the return of the principal paid to XXXXXXXXXX to acquire the Notes (the "Principal Amount"), a return (the "Return") calculated with reference to XXXXXXXXXX (the "Index") as provided in the following formula.
Principal Amount x Final Index Level - Strike Index Level
Strike Index Level
to a maximum of 90% of the Principal Amount
where
-the Final Index Level is the Index level 5 business days prior to maturity date; and
-the Strike Index Level is the lowest Index level occurring on a date that falls between the issue date of the Notes and 90 days after the issue date.
(e)If the Final Index Level is equal to or less than the Strike Index Level, only the Principal Amount will be paid to the Holder by XXXXXXXXXX on the maturity date.
(f)The Return, if any, that the Holder will receive from investing in the Notes will only be known by the Holder and XXXXXXXXXX on the date the Final Index Level is determined. Before that date, the Return that the Holder can expect to receive on the Notes is indeterminable being an amount between 0% and 90% (inclusive) of the Principal Amount.
PURPOSE
4.XXXXXXXXXX wishes to expand its client base by offering the Notes. The Holder wishes to purchase the Notes as an investment.
5.To the best of your knowledge and the knowledge of your clients none of the issues involved in this ruling request is
(i)in an earlier return of the taxpayer or a related person,
(ii)being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or related person,
(iii)under objection by the taxpayer or a related person,
(iv)before the courts or dealt with in a judgment that is under appeal or can be appealed,
(v)the subject of a ruling previously issued by the Directorate.
RULINGS
Provided the above statement of facts and proposed transaction are accurate and constitute a complete disclosure of all the relevant facts, provided the transaction is completed as proposed, and provided the Holder holds the Notes to maturity and receives the Return, if any, from XXXXXXXXXX, we rule as follows:
A.No amount will be required to be included in the Holder's income under subsection 12(4) of the Act for any taxation year during the term of the Notes.
B.For the taxation year in which the Notes mature, the Holder will include in her income the amount of the Return, if any, pursuant to paragraph 12(1)(c) of the Act.
The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed transaction is completed by XXXXXXXXXX.
The above advance income tax rulings do not apply to the Holder in the event she disposes of the Notes prior to the maturity date.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
XXXXXXXXXX
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© Her Majesty the Queen in Right of Canada, 1996
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© Sa Majesté la Reine du Chef du Canada, 1996
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