| 19(1) | File No. 5-9551 |
| S.J. Tevlin | |
| (613) 957-2118 |
February 15, 1990
Dear Sirs:
Re: Paragraphs 20(1)(c) and 20(1) (e.1) of the Income Tax Act (the "Act")
We are writing in response to your letter of January 18, 1990, and our several telephone conversations wherein you requested our opinion on the application of paragraphs 20(1)(c) and 20(1)(e.1) of the Act in the following situation.
In order to finance an acquisition of shares and convertible debentures the taxpayer enters into a financing arrangement, for a ten year period, which will include the issue of bankers acceptances (BAs) none of which will have a term in excess of one year. The borrower will pay, at the time the BA is issued, a "stamping fee" to the lender based on a percentage of the face amount of the BA.
You have asked our opinion as to whether a discount on the issue of a BA constitutes interest paid or payable for the purposes of paragraph 20(1)(c) of the Act. You have also requested that we confirm that a stamping fee will be a fee as described in paragraph 20(1)(e.1) of the Act and deductible as such even in situations where the term of the BA straddles 2 different taxation years of the borrower.
Opinions
With respect to the discount on the issue of BAs, it is our opinion that, provided the BA is issued for a term of less than one year, an amount in respect of the discount or a reasonable amount in respect of the year will be deductible by the borrower in computing its income provided the property acquired by the borrower, continues to be used for the purpose of earning income from a business or property.
It is also our opinion that the stamping fee paid at the time of issue of the BA would be a fee as described in paragraph 29(1)(e.1) of the Act. Where the BA does not mature before the end of the year, the stamping fee relates to more than one taxation year and paragraph 20(1)(e.1) will apply to allow a pro-rata deduction in each of those years.
As explained in paragraph 24 of Information Circular 70-6R any written or verbal opinions are not rulings and are not binding upon Revenue Canada, Taxation in respect of any taxpayers.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch