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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Contingent interest
Position TAKEN: Position released at Canadian Tax Foundation in October 2002
Reasons FOR POSITION TAKEN: N/A
XXXXXXXXXX 2003-018155
G. Moore
April 15, 2003
Dear XXXXXXXXXX:
Re: Paragraph 20(1)(c) of the Income Tax Act
This is in reply to your email of November 28, 2002, regarding the CCRA's proposed positions on interest deductibility that were released at the Canadian Tax Foundation on October 1, 2002.
You have asked if the Department of Finance is considering any changes to the current legislation regarding the interest deductibility rules in the Income Tax Act.
On February 18, 2003, as part of the presentation of the Federal budget, the Department of Finance published the following statement concerning the deductibility of interest:
"Recent court decisions have raised uncertainties as to how taxpayers are to treat expenses, in particular interest, in computing income from a business or property for purposes of the Income Tax Act. Most notably, these decisions could lead to inappropriate tax results where a taxpayer derives a tax loss by deducting interest expenses, even if under any objective standard there is no reasonable expectation that the taxpayer would earn any income (as opposed to capital gains), or where the presence or the prospect of revenue (as opposed to income net of expenses) is enough to conclude that an expenditure was incurred "for the purpose of earning income".
Neither of these results is consistent with appropriate tax policy, nor would they have been generally expected under prior law and practice. Therefore legislative amendments to the Income Tax Act will be considered in order to provide continuity in this important area of the law. Before finalizing any proposals, however, the Department of Finance will release them for public consultation, with a general goal of ensuring that they restore continuity with the expected consequences before these recent court decisions."
We trust that these comments will be of assistance.
Yours truly,
Roy Shultis
Deputy Assistant Commissioner
Income Tax Rulings Directorate
Policy and Legislation Branch
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