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.
Attention XXXX
October 11, 1978
Dear Sirs:
Re: Mortgage Investment Corporations
This is in reply to your letter of September 26, 1978 in connection with funds borrowed to finance the operations of a mortgage investment corporation.
Your letter outlines the situation whem the shareholders of the mortgage investment corporaticn are a number of registered retirement savings plans, the annuitants under such plans borrow funds and the borrowed monies are loaned to the corporation by way of non-interest bearing demand notes secured by a general assignment of the assets of the corporation. You have requested our confirmation that the interest incurred by an annuitant on the funds borrowed to loan to the corporation would be deductible in computing the annuitant's income and also that, if such loan should become a bad debt, the resulting loss to the annuitant would be treated as an allowable capital loss in his hands.
Initially, we should state that Interpretation Bulletin IT-239R is specifically directed towards the deductibility of capital losses, and the comments in paragraph 8 thereof in connection with the deductibility of interest are not a statement of general policy but are intended to apply solely to accomodate those situations involving a shareholder and his closely held corporation, where the reason for the borrowing and relending is to enable the corporation to overcome financial difficulties. Interpretation Bulletin IT239R is currently being revised and we understand the revision will clarify this matter.
We do not feel thrit the situation outlined above falls within the scope of the aommsnts in IT-239R referred to above. Accordingly, it is our opinion that the interest incurred by the annuitant in the above-tested situation would not be deductible in aaTquting his income as the borrowed money is not used ty him for the moose of gaining or producing income from a business or property. We feel that the same interpretation is applicable in respect of a loss arising where the loan to the Company becomes a bad debt of the annuitant, the debt was not acquired by the annuitant for the purpose of gaining or producing income and thus the loss would not be considered an allowable capital loss to him.
Yours truly,
for Director Specialty Corporations Division Corporate Rulings Directorate Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1978
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1978
Email this Content