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.
Re: Commercial Paper Issued at a Premium This is in reply to your letter of April 22, 1991 wherein you requested that we confirm the conclusions set out in your letter with respect to the tax consequences of issuing commercial paper at a premium to an issuer not in the business of lending money. Such paper would bear interest payable at maturity at a stated interest rate set at a premium but not outside an acceptable market range. Your letter was an opinion request based on a hypothetical set of facts on a proposed product and not a request for an advance income tax ruling.
We are unable to confirm the conclusions set out in your letter. Interpretation Bulletin IT-114 has been under review for some time (see the response to question 51 at the 1987 Round Table). The possibility that paragraph 12(1)(x) may apply to include a premium in an issuer's income has been considered but no general conclusion has been reached as such a conclusion would be a factual determination. The facts of a particular case would determine whether a capital gain would arise on a redemption of the commercial paper. In this regard, you may wish to refer to subsection 39(3). Whether the interest rate on the commercial paper is a reasonable rate of interest and results in a reasonable amount of a deduction under paragraph 20(1)(c) is a question of fact.
In our opinion, depending on the facts of a particular case, subsection 245(2) may apply to recharacterize a payment of interest on such commercial paper as in part a payment of interest and in part a return of capital.
If you are contemplating a specific transaction we would be pleased to consider it in response to a request for an advance income tax ruling, submitted in the form described in Information Circular 70-6R2, dated September 28, 1990.
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© Sa Majesté la Reine du Chef du Canada, 1991
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