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.
October 4, 1979
K.R. Warren
RE: Revision of IT-239R , Version No. 4
1. As per my instructions I have taken the positions in version no. 4 that are based on the positions in version no. 2. Refinements made to version no 2 that were made in version no. 3 have been incorpora ted in this version.
2. Previous versions did not consider the fact that subparagraph 40(2) (g)(ii) consists of two parts:
(a) a debt acquired for the purpose of gaining or producing income from a business or property (other than exempt income),
(b) a debt acquired as consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm's length.
I have added this second part to the bulletin see comments in paragraphs 3 and 6 of the bulletin.
3. The previous versions limited the exception to the general rule to shareholders (see para. 5 of Version no. 2). I think thatthe exception could be extended to apply to any taxpayer who is not dealing at arm's length. It seems reasonable that a taxpayer, such as, a relative of a shareholder who loans money or gives a guarantee to that shareholder's corporation should be permitted to deduct his capital loss in the same circumstances that we permit a shareholder to deduct his. I have therefore changed the reference to shareholder in paragraph 5 of version no. 3 to taxpayer.
4. I think that paragraph 4 of version no. 3 is misleading as there may be legitimate situations where money is borrowed at a greater interest rate thQn what it is loaned for. For example, a sharehold( may borrow for one year from a bank at 15% and reloaned it to his corporation for two years at 12%. In such a situation the loan will result in net income for the two year period but if we apply paragraph 5 the taxpayer will not be permitted to write off his loss in year one. This seems to be in direct conflict with our position re Canada Savings Bonds, para. 11 of IT-284R , IAAC's, para. 11 of IT-230R , Registered Pension Plans para. 15 of IT-167R3 , and Registered Retirement Savings Plans, Ti guide where we permit the deduction of interest on money borrowed to make these investments notwithstanding that there will be a loss in the year in which the interest is paid.
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© Her Majesty the Queen in Right of Canada, 1979
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© Sa Majesté la Reine du Chef du Canada, 1979
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