24(1)
5-902783
D. Palamar
(613) 957-2746
19(1)November 16, 1990
Dear Sirs:
Re: Family Mortgage/GIC Product
We are writing further to your letter of October 5th to Debbie Lightheart and to your telephone conversation of November 6th with David Palamar. In your October 5th letter you requested our views on the above captioned product which you describe as follows:
24(1)
Specifically you requested that we provide an opinion on whether the GIC interest would be taxed on the reported amount or some other basis.
Although we are unable to comment specifically on a particular proposed arrangement, other than in response to a fully documented request for an advance income tax ruling, we can advise you of our general view that the parent in a family mortgage arrangement involving a financial institution would be required, by virtue of subsection 56(2) or 56(4) of the Income Tax Act, to include the amount of any "foregone" interest in income. In other words the parent would be required to include in income interest calculated at the applicable market rate on the GIC deposit regardless of whether it is actually paid.
We have also been advised by our Source Deductions Division that any financial institution offering such a product would be required to issue a T-5 slip, which would reflect the total income that would have been earned by the parent on the GIC had the interest been calculated at the going market rate at the time the GIC was purchased.
The opinion expressed herein is provided pursuant to the practice referred to in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch