Words and Phrases - "debt obligation"

Regarding the determination of the “lowest total principal amount” {“LPTA”) in s. (b)(i)(A) of A of “qualifying rent expense,” the Directorate stated:

[T]he entire time period that the particular qualifying property has been owned must be considered. The amount that represents the lowest cumulative principal amount of all debt obligations with an amortization period that are secured by a mortgage or hypothec on the qualifying property at any time after the qualifying property was acquired, is the LTPA Limit.

For example, although generally, given the amortization of mortgages, this aggregate would be the lowest in the qualifying period being tested, if in a prior period, there had been a refinancing that significantly increased the aggregate, the lowest aggregate likely would be in this prior period, with a likely resulting reduction in the eligible amount of interest paid in the qualifying period.

Regarding how the eligible amount of interest should be determined when one of the limitations in s. (b)(i)(A) and (B) of A applies, the Directorate stated:

There may be several methods that may be used to determine the portion of the total interest that is qualifying rent expense, however, the method used should be reasonable in the circumstances and supportable.

It also indicated:

Generally, a debt obligation is considered to arise whenever a binding liability is created and the principal amount of the liability can be quantified. …

Whether a particular debt obligation, such as a line of credit, a demand loan or a forgivable loan, is secured by a mortgage or hypothec on the qualifying property is a question of fact and law … .

[A]lthough interest paid on a debt obligation (such as a line of credit, a demand loan or a forgivable loan) secured by a mortgage or hypothec on a qualifying property may be considered qualifying rent expense, if it has no amortization period, the principal amount of the debt obligation would not be included in the LTPA Limit described in clause (b)(i)(A) … .