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.
Principal Issues: Comments on Ludco case - will the Department change its position re: deductibility of interest on funds borrowed to buy common shares
Position: No
Reasons: Special circumstances in Ludco
XXXXXXXXXX J. P. Dunn
991753
Attention: XXXXXXXXXX
Dear Sirs:
RE: Ludco Enterprises Ltd. et al
Pursuant to our (Dunn/XXXXXXXXXX) recent telephone conversation, this to confirm that, as a result of the decision in the above-referenced action, the Department does not intend to amend its position that interest payable on funds borrowed to purchase common shares is generally deductible for tax purposes.
Because of comments by the Court in this case, concerns had been raised as to whether interest would continue to be deductible on borrowed funds used to invest in publicly traded securities, especially in circumstances in which the expected dividend yield is less than the interest expense on the borrowed funds. It is the Department's view that these types of investments are fundamentally different than those present in the Ludco Enterprise Ltd. situation as the degree of certainty of the investment results to be obtained that was present there does not usually exist in an arms-length investment in publicly traded securities.
We trust that this the information which you require.
Yours truly
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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