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.
PRINCIPAL ISSUE:
Whether termination payments under interest rate swap are deductible under section 9.
Position:
Yes - where payments are made pursuant to a plain vanilla interest rate swap agreement.
REASON:
CCRA's position on interest rate swaps was initially set in response to a question at the Roundtable at the Canadian Tax Foundation's 1984 Annual Conference and again in our response to question # 11 of the Roundtable at the Canadian Tax Foundation's 1993 Annual Conference. This position applies to a swap where the notional amounts are equal and the payment dates match (a "plain vanilla interest rate swap"). It continues to be our view that all amounts payable or receivable, including termination payments, pursuant to a plain vanilla interest rate swap agreement will be considered to be on account of income and will be included in or deductible from the income of the taxpayer pursuant to section 9 of the Act.
TEI - Liaison - December 2003 - # 2003-004855 (Question #12)
# 12
Question:
Will the CCRA confirm its position that amounts receivable or payable pursuant to an interest rate swap agreement, including termination payments, are on account of income and are therefore included in, or deductible from, the income of a taxpayer pursuant to section 9 of the Act?
Answer:
CCRA's position on interest rate swaps set out in our response to question # 11 of the Roundtable at the Canadian Tax Foundation's 1993 Annual Conference applies to a swap where the notional amounts are equal and the payment dates match (a "plain vanilla interest rate swap"). It continues to be our view that all amounts payable or receivable, including termination payments, pursuant to a plain vanilla interest rate swap agreement will be considered to be on account of income and will be included in or deductible from the income of the taxpayer pursuant to section 9 of the Act.
Generally, our auditors will examine, to some extent, any transaction that is significant in economic terms and that was undertaken by a taxpayer in a taxation year that is under review. A transaction involving a financial derivative such as a swap between a taxpayer and a counterparty is generally a significant transaction in economic terms and as such will likely be examined by an auditor if payments or receipts in connection with the swap are reported in a taxation year that is under review.
TEI Liaison Meeting
Prepared by: Philip Diguer
December 2, 2003
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