28 June 1989 Ministerial Correspondence 73894 F - Cumulative Net Investment Loss Calculation - Interest on Money Borrowed to Acquire an IAAC

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.

SUBJECT:  19(1) Cumulative Net Investment Loss (CNIL) Interest on Money Borrowed to Acquire an Income Averaging Annuity Contract (IAAC)

We are writing further to your memorandum of April 28, 1989 and our response dated May 12, 1989.

We have been advised by Current Amendments and Regulations Division that, from a policy point of view, IAAC payments should not be included in "investment income" and interest paid on borrowed money used to acquire an IAAC should not be included in "investment expense" for purposes of the CNIL calculation.  In order to correct this problem, Current Amendments recommends that interest on money borrowed for IAAC purposes be reported on line 232 of the T1 Return rather than line 221 (This is the solution suggested by 19(1)

We are enclosing, for your information, copies of correspondence with Current Amendments on this issue. With regard to the concluding comments in Current Amendments' memorandum, we are assuming that the Department of Finance will confirm the views of Current Amendments.  We will advise you further once the response from the Department of Finance is received.

Footnote

It has come to our attention that there may be other problems related to the reporting of "interest expense" on the T1 Return that may create CNIL account balances that are unknown to the taxpayers concerned.

For example, Federal Government employees, making past service contributions to the superannuation account, have an interest element included in their payments. Assuming that the employee is "grandfathered" for purposes of subsection 18(11) , the interest portion of the payment may be deducted as a carrying charge, to permit a contribution to an RRSP up to the $3,500 limitation.  In so doing, the taxpayer would claim the interest expense as a "carrying charge" on line 221 and thus include in "investment expense", for CNIL purposes, an amount that should not be so included.

This matter is being brought to your attention for what ever action you may consider necessary regarding amendments to the 1989 T1 Guide.

B.W. DathDirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch