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Recent Pronouncements on Interest Deductibility and Funds Borrowed to Acquire Common Shares

October-29-2002

Area Corporate Finance and Securities

Summary


At the recent annual Canadian Tax Foundation Conference, the Canada Customs and Revenue Agency (the “CCRA”) released a brief position paper on interest deductibility in a number of important commercial contexts, including the deductibility of interest on funds borrowed to acquire common shares. Under the Income Tax Act (Canada), interest is generally deductible in respect of funds borrowed for the purpose of gaining or producing income from a business or property. It has long been accepted, however, that interest on funds borrowed to purchase common shares of a Canadian company would be deductible notwithstanding the fact that such company may not in fact pay, or be expected to pay, dividends on its common shares.


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