A debenture issued by a corporation provided for the payment of base interest plus the payment of an “additional interest” on maturity that was the greater of a fixed amount and a formula amount based inter alia on the imputed value of the corporation’s equity. The Directorate indicated that insufficient information was available to determine whether the “additional interest” amount qualified for deduction as participating interest in accordance with CRA’s policies (e.g.,). In finding that there would be a s. 20(1)(f) deduction if the “additional interest” was not qualifying participating interest, the Directorate stated:
That obligation to pay remained even if the Corporation did not repay its loan before maturity. In our opinion, this situation reflects the spirit of paragraph 20(1)(f), which was enacted to allow the deduction of a premium payable in satisfaction of an obligation. Consequently, we are of the view that the additional interest paid by the Corporation to the Creditor upon repayment of its loan was included in the definition of principal and did not constitute a premium that the issuer was to pay conditional on its exercise of its right to redeem the obligation before maturity.