A Canadian corporation (Opco) borrows under a public offering of "New Bonds"in order to to make a cash tender offer at a premium for the "Existing Bonds" and to make a cash tender, also at a premium, for the convertible debentures.
The amount of the Existing Bond Offer Premium to be paid in respect of each of the Existing Bonds relates to, and does not exceed, the value at the time of the payment of the amount that, but for the repayment, would have been paid or payable by Opco as interest on the Existing Bonds in taxation years ending after the date the Existing Bond Offer Premium payments were made [and similarly re the debenture premium].
Rulings that ss. 18(9.1)(e) and (f) will appply the the premiums. The ruling summary stated that "'substitution', for purposes of subsection 18(9.1), does not include payments made to buy down an interest rate or, bonus or penalty payments made to prepay the principal of a debt obligation in situations where the debtor has parted with something such that there has been a 'performance of obligation' and that the performance involves an actual payment (not a promise to pay in the future) by the debtor".