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D.S. Delorey
(613) 957-2123June 27, 1986
Dear Sirs:
This is in, reply to your letter of June 5 concerning the deductibility of payments made by a director pursuant to section 227.1 of the Income lax Act (the "Act").
It is your view that a director should be likened to a guarantor when he is required to make a payment pursuant to section 227.1 of the Act. Thus, you feel that if the company had used the related funds to produce income from a business or property, the relevant comments in interpretation, bulletin IT-239R2 and paragraph 8 of IT-485 should be considered applicable such that the payments made by the director could represent an allowance business investment loss ("ABIL") of the director.
Generally speaking, we de not consider a liability arising under section 227.1 of the Act to have arisen out of a situation which is similar to that out of which a liability under a guarantee arises. Thus, it is our view that it would require an expansion of the administrative position set out in IT-239R2 in order that the subject payments might represent an ABIL of the director. The Department is not prepared to expand the position set out in 1T-239R2.
The above comments reflect our general views on the matter. If you have a specific situation in mind, you might wish to submit complete details to officials of the Montreal District Taxation. Office and ask for their views on the matter.
We trust the above comments will be of assistance.
Yours truly, ORIGINAL SIGNED BY Wm. R. McCoIm
for Director Reorganizations and Non-Resident Division. Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch