In order to finance $400,000 of the $500,000 purchase price of a rental property, the taxpayer receives a 5-year mortgage loan from a financial institution, and also receives 5% cash back, or $20,000, which the taxpayer uses for, inter alia, the down payment. This cashback reflects that the mortgage bears the institution’s “posted” interest rate, rather than its most favourable rate. CRA stated:
Provided the taxpayer has not already taken the amount of the rebate into account in computing income under section 9, subsection 12(2.2) may apply in respect of this additional interest amount if an election is made to that effect. This election will result in the additional interest expense incurred or made in the year of receipt of the cashback or the following year being reduced. The cashback received from the financial institution that does not reduce the amount of interest expense pursuant to subsection 12(2.2) will therefore be required to be included in the taxpayer's income in the year it is received pursuant to paragraph 12(1)(x).