Principal Issues: [TaxInterpretations translation] A borrower makes use of the "Immigrant Investor Program" of Investissements Québec. As part of the loans he receives, he also receives a premium to reduce the overall financing cost of the investment project. What is the tax treatment of that premium?
Position: Due to the limited information provided by the representative, we can only issue general information. If the premium does not reduce the cost of the eligible capital property, it must be included in the borrower's income under paragraph 12(1)(x). However, an election may be made under subsection 12(2.2) to reduce the amount of the expense and the amount of the income inclusion.
Reasons: Due to the limited information provided by the representative, we can only issue general information. If the premium does not reduce the cost of the eligible capital property, it must be included in the borrower's income under paragraph 12(1)(x). However, an election may be made under subsection 12(2.2) to reduce the amount of the expense and the amount of the income inclusion.
XXXXXXXXXX 2006-016552 Francois D. Bordeleau, LL.B January 22, 2008
Dear Sir,
Subject: Bonus received under the Immigrant Investor Program (the "Program")
This is further to your letter dated January 3, 2006 in which you asked whether a premium received by a borrower under the Program can be applied against the cost of acquiring capital assets. We apologize for the delay in responding to your question.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
The Program is administered by IQ Immigrants Investisseurs Inc, a subsidiary of Investissement Québec. In your letter, you indicated that a borrower - who receives a number of loans under the Program - has a major investment project following the acquisition of capital property or of laying hen quotas. Under the Program, the borrower also receives a bonus of $170,000. You are of the view that such a premium, which is to be used to reduce the overall financing cost of the borrower's project and to cover the various costs inherent in the investment project, may be applied against the acquisition of certain eligible capital property pursuant to subsection 14(10) and paragraph 6 of Interpretation Bulletin IT-273R2 (the "Bulletin").
Our Opinion
As stated in paragraph 22 of Information Circular 70-6R5 dated 17 May 2002, we generally do not provide written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices. However, we can offer the following general comments that we hope may be helpful to you.
Where an amount of government assistance relates to the acquisition of eligible capital property ("ECP") of a taxpayer in respect of a business, the cost of the ECP is reduced by the full amount of government assistance received or receivable by the taxpayer, less any amount repaid pursuant to a legal obligation to repay.
Where the government assistance is unrelated to the acquisition of an ECP, the Act provides that the amount of the assistance must be included in the taxpayer's income by virtue of paragraph 12(1)(x). If certain conditions are satisfied, the taxpayer may make an election by virtue of subsection 12(2.2) to avoid having all or part of the amount included in income by virtue of paragraph 12(1)(x). For more information, please see the Bulletin.
These opinions are not advance decisions and, as stated in paragraph 22 of Information Circular 70-6R5 of 17 May 2002, are not binding.
We hope that this information of assistance.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.