October 25, 1991
Dear Sirs:
Re: Subparagraph 212(1)(b)(vii) and Accrued Interest
This is in response to your letters of August 26, 1991 concerning subparagraph 212(1)(b)(vii) and September 18, 1991 concerning convertible debt securities and accrued interest.
In our view both the last sentence of the penultimant paragraph of our letter of July 22, 1991 (file 910431) and the response to question 7 of our letter of July 29, 1991 (file 910431) clearly answered the question asked in respect of paragraph 212(1)(b)(vii). At your request the same question was answered again in our latter of August 20, 1991. The last sentence of item 1 in the letter of August 20, 1991 expresses our view on the matter in question. We regret that we cannot be of any further assistance in this matter.
With respect to the question concerning convertible securities and the foregoing of interest on conversion as indicated in our responses of August 1, 1991 (file 911283) and September 4, 1991 (file 912293), until all the facts, including those set out in our letter of September 4, 1991, of the particular financial arrangement you are concerned about are provided to us we will not be in a position to respond to such an inquiry. Furthermore it is difficult to imagine a person with whom a corporation resident in Canada is dealing at arm's length entering into a financial arrangement with that corporation where pursuant to the terms of the obligation it is convertible and accrued interest on the obligation is forgiven on conversion.
Perhaps part of the difficulty surrounding this matter is that you neither have a completed transaction or an actual proposed transaction with which you are concerned and therefore all the required information may not be available. If you should have an actual proposed transaction in the future you may wish to submit it to this Division in the form of an advance income tax ruling request with the appropriate documentation and other relevant facts.
We trust this adequately explains our position.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch