7 June 2007 External T.I. 2007-0228831E5 F - Pénalité au rachat d'une obligation -- summary under Subparagraph 40(1)(a)(i)

When a bondholder requested an early repayment of its bonds, it was required to pay a premium that was withheld first from any accrued but unpaid interest on the bonds, and second out of the principal payable on the repayment. CRA indicated that this withholding mechanic did not reduce the interest income that was to be reported by the issuer on the T5 slip it issued, or reduce the redemption premium, which was to be deducted in computing the capital gain or loss on the disposition by the bondholder of its bonds.