Canco, which had a May 31 year end, on June 1, 2004, sold a property to an unrelated non-resident corporation (Foreign Co), giving rise to an unpaid non-interest bearing balance of $500,000. Foreign Co repaid $25,000 every month, so that on June 2, 2005, was $200,000. Should the interest under ss. 17(1)(a) and (b) be computed based on a debt amount of $200,000, or $500,000? The Directorate stated:
[O]nly the portion of the debt (the "amount"), expressed in money, that "has been or remains outstanding" for more than one year is relevant for the purposes of calculating interest under paragraphs 17(1)(a) and (b). Furthermore, paragraphs 17(1)(a) and (b) no longer refer to "une créance" or "an amount" but rather to "la créance" or "the amount owing" that has been or remains outstanding for more than a year. In your situation, we are of the view that Alternative 1 should be adopted and thus, for the purposes of calculating interest, the amount owing for the taxation year ended May 31, 2005, was $200,000.