An individual acquired a bond, bearing interest at 7% and with a face value of $100, for investment purposes in the secondary market for $124. What is the treatment of the $24 premium? CRA stated:
Subsection 12(9.1) provides that where a taxpayer disposes of an interest in a debt obligation in respect of which the taxpayer's share of the principal payments is unequal to the taxpayer's share of the interest payments on that obligation, the portion of the proceeds of disposition that can reasonably be considered to represent a recovery of the cost to the taxpayer of the interest in the debt obligation will not be included in computing the income of the taxpayer. …
The CRA is of the view that an obligation such as the one described in the above example is not an obligation described in paragraph 7000(1)(b) and therefore the provisions of subsection 12(9.1) do not apply.