14 April 2014 External T.I. 2014-0521341E5 - Unclaimed interest expense

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a taxpayer can claim an interest expense in a taxation year subsequent to the taxation year in which the interest was paid?

Position: No, but the taxpayer may attempt to file an amended return to claim the interest expense in the year in which it was paid.

Reasons: Paragraph 20(1)(c) requires that the deduction be claimed in the year in which the interest was paid or in respect of which the interest was payable.

XXXXXXXXXX
L. Friedlander
2014-052134

April 14, 2014

Dear XXXXXXXXXX:

Re: Unclaimed interest expense

This is in reply to your email of February 19, 2014, in which you request a technical interpretation regarding a deduction for interest expense incurred in previous taxation years.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we have provided some general comments below.

Our comments

You indicate that the interest was paid for the past XXXXXXXXXX years on a loan (the "Funding Loan") that was used by you to make a loan (the "Investment Loan") in a prior year to a third party. You did not claim a deduction for interest paid on the Funding Loan in the tax returns you filed for the years in which the interest was paid. You disposed of the Investment Loan in XXXXXXXXXX and claimed a capital loss in respect of that disposition.

Paragraph 20(1)(c) of the Income Tax Act (the "Act") provides a deduction in a taxation year for interest paid in the year or payable in respect of that year (depending upon the method regularly followed by the taxpayer in computing the taxpayer's income) on funds borrowed for the purpose of earning income from a business or property. You have not indicated whether the Funding Loan was for the purpose of earning income from a business or property so we cannot provide comments as to whether the interest on this loan is deductible. Paragraph 20(1)(c) of the Act does not permit a taxpayer to claim a deduction for interest paid in a previous taxation year on an income tax return for a subsequent year.

When a taxpayer wishes to claim an interest deduction for a previous taxation year in respect of which a return has already been filed, the taxpayer may request a reassessment of the previous year tax return. You can find information on how to request a reassessment of a previous year return on the CRA web site at the link below:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/chngrtrn-eng.html

You have asked whether interest deductions may be carried forward to subsequent taxation years. A taxpayer may carry forward non-capital losses (which may have resulted in whole or in part from interest deductions) from previous years in certain circumstances in accordance with paragraph 111(1)(a) of the Act.

We trust this information is of assistance to you.

G. Moore
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch