30 June 1989 Income Tax Severed Letter AC73783 - Stripped Bonds

June 30, 1989

Policy & Systems Branch             Legislation & Intergovernmental
J.M. Legault                          Affairs Branch
Director                            Leasing and Financing Section
Returns Processing Division         K. Donelly
                                    957-3500
Attention:  Rick Sequin

Subject:  Reporting Requirements     File     7-3783

We are replying to your memorandum of March 29, 19979, requesting that we reply to the following questions:

     "1.  What reporting requirements, if any, exist under the    
          Income Tax  Act and Regulations, for transactions
          involving the disposition of:

     (a)  coupons bonds in their entirety (bonds whose coupons are 
          not stripped),

     (b)  coupons stripped from bonds and sold separately at a    
          discount, and 

(c) the bond residue, once the coupons are stripped?

     2.   Are the reporting requirements, is any, changed by the  
          method of issue (bearer or registered form)?"

          The reporting requirements that may under the Income Tax
          Act (the Act) and Regulations apply with respect to the
          transactions described in your questions can probably be
          found in one or more of the following subsections of the
          act and Regulations:

Subsection 234(1) and 234(3) of the Act

Regulations:

          201(1)(b)(i)
          201(e)(d)
          201(2), 201(3)
          202(1)(a) 
          202(3), 202(6), 202(7)
          203(1), 204(1)
          207(1), 207(3)
          220(1)

Draft Regulation 230.(1)

          Which provison described above applies at any time will
          dependo on the precise details of each transaction.  it
          is a question of fact in each situation whether or not
          transactions in strip coupons and strip bonds at a
          discount result in interest income and/or related
          reporting requirements.

          We regret that we are unable to provide you with simple
          comprehensive answers.  However, the law with respect to
          discounts is unclear.  In addition there is a variety of
          details involving a bond and coupon dispositions.

          Whether or not one or more of the above noted provisions
          would apply in all circumstances involving strip coupons
          or bonds, is uncertain.  Consequently we would be
          prepared to review specific documents to determine what
          if any reporting requirement exist in the Act or
          Regulations.

Chief Leasing and Financing Section Financial Industries Division