1996 Corporate Management Tax Conference Round Table, Q. 7

Until RC completes its review of the subject, interest on excess debt assumed by a transferee corporation in an s. 85(1) rollover transaction will be deductible provided the assets were acquired by it for the purpose of producing income and the interest on the assumed debt was deductible by the transferor under s. 20(1)(c). "However, if any of the assumed debt is incurred by the transferor as part of the same series of transactions, the Department would have to review all the surrounding circumstances to determine whether the interest would be deductible to the transferee".

Until it completes its review, RC will permit excess debt to be assumed by the transferee corporation in consideration for the issuance by it of a note payable or in consideration for the redemption by it of some of the shares issued to acquire the transferred assets.