In finding that the debt forgiveness rules would not apply to the compound interest component of interest owing on a loan that had been capitalized, with the loan then being forgiven, the Directorate stated:
…[C]ompound interest is deductible only when it is paid. …[P]aragraph 80(2)(b) will not apply to compound interest if it is not deductible by virtue of paragraph 20(1)(d), being considered unpaid. Consequently, the provisions of section 80 will not apply to the forgiveness of the amount of accrued compound interest.