| 24(1) | File No. 5-900703 |
| Peter Lee | |
| (613) 957-2745 |
Attention: 19(1)
June 18, 1990
Dear Sirs:
Re: Interpretation Bulletin IT-361R2 ("IT-361R2") Subparagraph 212(1)(b)(vii) of the Income Tax Act
This is in reply to your letter of May 2, 1990, wherein you requested that we confirm our interpretation of subparagraph 212(1)(b)(vii) with respect to interest paid in a particular loan arrangement.
We cannot provide the requested confirmation arrangement described in your letter relates to a specific proposed transaction and accordingly should be the subject of an advance income tax ruling request submitted in the form described in Information Circular 70-6R. While we are unable to comment directly on the income tax consequences of the transaction described in your letter, the following general comments on the issues raised may be of assistance to you.
Our general views, with respect to a situation where the borrower is required to make deposits in excess of 25 per cent of the total principal amount within 5 years to a sinking fund, are set out in paragraph 8 of IT-361R2. IT-361R2 does not specifically address arrangements where a borrower is required to make deposits with a lender. In our opinion, there usually would be an "obligation to pay more than 25 per cent of the principal amount" for the purposes of subparagraph 212(1)(b)(vii) in a situation where the borrower is required to make deposits in excess of 25 per cent of the total principal amount within 5 years to an interest bearing savings account with the lender. As a result the subparagraph 212(1)(b)(vii) exemption would not be available in such situations.
Our comments are provided in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate