5 March 2001 Internal T.I. 2000-0040357 F - Déductibilité - utilisation inadmissable -- summary under Subparagraph 20(1)(c)(i)

In Year 1 an individual used $50,000 of borrowed money to acquire 25,000 mutual fund units and the used reinvested income to acquire an additional 2,000 units. In Year 2, he sold 2,500 of the units for $7,500 and used the proceeds for personal purposes. Regarding the portion of the loan that ceased to be used for eligible purposes, the Directorate stated that “due to the fungible nature of mutual fund units, the Agency generally recommends the proration method.” Accordingly, 25,000/27,000 of the 2,500 sold units (or 2315) were treated as a sale out of the loan-financed units. That left 90.74% (22,685/25,000) of the original source of income, so that 90.74% of the loan continued to generate deductible interest.