A.B. Adler (613) 957-8962
19(1)
January 30, 1990
Dear Sirs:
This is in reply to your letter dated November 27, 1989 in which you requested our views concerning the meaning of the words "invariant" and "invariable" as used in the English and French versions respectively of subparagraph 5100(2)(b)(iii) of the Income Tax Regulations ("Regulations") and provided two examples for our use.
With respect to your two examples, it is our view that escalating rates of interest, i.e. 10% in the first two years, 11% in the next two years and 12% in the final year of a five year loan would each constitute an invariant rate of interest for purposes of subparagraph 5100(2)(b)(iii) of the Regulations since the wording of this subparagraph does not require an invariant rate of interest over the term of the debt obligation. However, it is our view that in your fixed formula rate of interest scenario (i.e. the rate of interest is expressed to be prime plus or minus two points, or 120% of prime) there is no invariant rate of interest since the prime rate itself is a variable rate.
For your information, we referred to the definitions of the adjectives "invariant" and "invariable" in Webster's Third New International Dictionary and in Harrap's New Standard French and English Dictionary respectively in our review. In our view the two words in question are sufficiently close in meaning (in that they contemplate a rate of interest that does not change) for our views expressed above to apply to both the English and French versions of subparagraph 5100(2)(b)(iii) of the Regulations.
We trust that our comments will be sufficient for your purposes.
Yours truly,
for Director Financial Industries Division Rulings Directorate