June 17, 1986
TO- HALIFAX DISTRICT OFFICE
J.R. Miller Chief of Audit Review
FROM- HEAD OFFICE Leasing and Financing Section M. Siegel (613) 995-2455
RE: Deductibility of Interest Application of Subsection 247(1)
This is in reply to your memorandum of May 20, 1986 to which you have attached a copy of a letter from XXXX dated May 12, 1986.
In their letter XXXX have set out the following:
Facts
(1) The shares of corporation A, a Canadian controlled private corporation, are held by three different groups, group one, two and three.
(2) Groups one and three wish to buy out group two.
Proposed Transactions
(3) Groups one and three subscribe for common stock of a new corporation B.
(4) Corporation A obtains financing supported by its assets and loans funds to the new corporation B.
(5) The new corporation B acquires the shares of corporation A currently held by group 2.
(6) Corporations A and B are amalgamated pursuant to Section 87 of the Income Tax Act (the "Act").
Confirmation Requested
(7) Interest expense incurred by corporation B on the acquisition of the Shares of corporation A held by group 2 would be deductible under the Act.
(8) Subsection 247(1) of the Act would not be applicable to the above circumstances.
Since XXXX has outlined a series of proposed transactions we agree with your opinion that the entire matter should be dealt with as an advance income tax ruling request. We have not been provided with sufficient information to provide even a general response on the issue of the deductibility of interest on the loan taken out by corporation A and reloaned to corporation B or on the issue of the application of subsection 247(1) of the Act.
Chief Leasing and Financing Section Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch