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.
Principal Issues: Whether the CRA position expressed in document 2013-0477601E5 regarding interest deductibility on restructured borrowings is still valid in light of the amendments to section 245 as part of Bill C-59.
Position: Yes, the CRA position is still valid.
Reasons: see below.
2025 CTF Annual Tax Conference
CRA Round Table
Question 2: Loan Restructuring and Application of the General Anti-Avoidance Rule
In CRA Document No. 2013-0477601E5 (“the 2013 Document”), (footnote 1) the CRA was asked whether, under certain circumstances, interest would be deductible where borrowed money is used to purchase publicly-traded common shares. Specifically, the CRA was asked whether interest on a loan would be deductible for income tax purposes where an individual uses proceeds from the sale of publicly-traded common shares to pay down a mortgage on a personal residence, and then takes out a loan to repurchase identical shares in the same publicly-traded corporation. The CRA’s position was “[g]enerally yes provided that there is a direct link between the borrowed funds and an eligible use.”
In light of the amendments to the General Anti-Avoidance Rule (“GAAR”) in section 245 (footnote 2) that received Royal Assent on June 20, 2024,(footnote 3) and, in particular, the new economic substance test in subsections 245(4.1) and 245(4.2), has the CRA's position expressed in the 2013 Document regarding interest deductibility on restructured borrowings changed?
CRA Response
The CRA confirms that its position expressed in the 2013 Document regarding interest deductibility on restructured borrowings is still valid.
However, it is important to note that the application of the GAAR requires an analysis of all the facts and circumstances relating to a particular situation. Only a detailed analysis of all the facts would allow us to make a definitive determination as to the application of the GAAR to a particular situation. Accordingly, our response may differ if the series of transactions described in the 2013 Document included other transactions.
Laurence Gagné
2025-108068
December 2, 2025
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1. CRA Document No.2013-0477601E5, February 27, 2013.
2. Unless otherwise stated, all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the Regulations).
3. Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st session, 2024 (Can.), Royal Assent received on June 20, 2024.
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
© His Majesty the King in Right of Canada, 2025
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 le Roi du Chef du Canada, 2025
Email this Content