| 7-921151 | |
| B. Rankin | |
| (613) 957-8974 |
May 13, 1992
Calgary District OfficeResource Industries SectionG.C. HoardChief of Audit
Attention: Rick Edwards
24(1)
Gold Loan
This is in reply to your recent request for additional information concerning the income tax treatment of the 24(1) gold loan. In our view, 24(1) our policy is that the fluctuations in the amount of the liability are on income account. This policy is reflected in paragraph 3 of Interpretation Bulletin IT-346R where it is indicated that transactions in commodities connected with the business of the taxpayer are subject to income treatment. Further support for income treatment is found in the 1961 Supreme Court decision for Canadian General Electric v. MNR (61 DTC 1300), where the court considered the inclusion in income for accrued profit or loss to reflect the fluctuation in value of a foreign currency loan.
We should also clarify our position that gold loans and foreign currency loans are both subject to a variable cost of borrowing, thus in accordance with the policy for foreign currency loans outlined in Interpretation Bulletin IT-95R, the gold loan should be revalued annually at the close of the borrower's tax year, with the resulting gain or loss included in computing his income for the year. Profit or loss resulting from fluctuations in the value of gold are not directly related to production and as a result will not be included in computing the borrower's resource profits.
With respect to your question concerning the subsection 20(24) election, we confirm the position taken earlier. In our view the gold loan does not represent an amount received for services not rendered or goods not delivered that was required to be included in the borrower's income pursuant to 12(1)(a) of the Act. As a result, we do not agree that the 24(1) is eligible for the subsection 20(24) election to claim a reserve under 20(1)(m) of the Act.
If you have any questions or would like to discuss our comments further, please feel free to contact the rulings officer at the telephone number provided above.
A/DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings Directorate