5-903398
Dear Sir or Madam,
Re: Interest Expense
We are writing in reply to your letter of November 26, 1990 concerning the deductibility of interest. We apologize for the delay in responding.
You explained that by virtue of your employment, you may borrow money from your employer at a reduced rate of interest. You are deemed to have received a taxable benefit arising from such a loan, which is included in your income.
You intend to use the funds borrowed from your employer for investment purposes.
You would like to know whether the amount of the interest benefit included in your income may be deducted from income as a cost of borrowing money.
Our Comments
The question you are asking is primarily one of fact, which is usualLy answered by a Revenue Canada District Taxation office. We are however, prepared to offer you the following general comments, which may not in all circumstances apply to your situation.
The interest benefit included in your income will be deemed to be interest paid in the year by you and will qualify for deduction if the borrowed money is used by you to produce income from business or property.
There is no need to multiply the taxable benefit by the marginal tax cost to calculate the amount deductible as you have suggested.
We have enclosed a copy of Interpretation Bulletin IT-421R "Benefit to individuals, corporations and shareholders from loans or debt". We refer you in particular to paragraph 19, which discusses a benefit amount as interest expense.
We hope you will find our comments helpful. Please note that our comments are not binding on the Department, since they do not constitute an advance ruling.
Yours truly,
for the DirectorBilingual Services and Resource Industries DivisionRulings Directorate