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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether interest is deductible on money borrowed from personal line of credit and used to acquire a guaranteed investment certificate.
Position: Depends on particular facts
Reasons: Was borrowed money used for the purpose of earning income from a business or property.
XXXXXXXXXX 2000-004564
N. L. Storry
October 17, 2000
Dear XXXXXXXXXX:
Re: Interest Deductibility
This is in reply to your letter July 18, 2000, which was forwarded to our office from the Sudbury Tax Centre, wherein you requested our views regarding the deductibility of interest where money borrowed using a personal line of credit is used to acquire a Guaranteed Investment Certificate ("GIC").
Although we do not have all the particular facts of your situation, we would like to offer the following comments regarding the deductibility of interest. Paragraph 20(1)(c) of the Income Tax Act permits the deduction of interest on borrowed money used for the purpose of earning income from a business or property. The term income is interpreted to mean net income or profit. In order to earn income, there must be a source of income and to have a source of income, the taxpayer must have a profit or a reasonable expectation of profit. Where an activity does not generate a profit and offers no expectation of profit (net income), no deduction for expenses will be allowed.
In your particular situation, if the interest rate offered on the GIC is greater than the interest rate on the personal line of credit, the interest expense incurred on the line of credit will be deductible for income tax purposes. However, if the interest rate on the GIC is less than the interest rate on the line of credit, you have not borrowed money for the purpose of earning income because there is no reasonable expectation of profit. Therefore, the interest expense incurred on the line of credit is not deductible for income tax purposes.
We trust these comments will be of assistance.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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