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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Interest on funds borrowed to purchase a "Prescribed Annuity Contract"
Position: No
Reasons: PAC is not subject to the accrual rules in 12.2 - therefore, interest expense is denied by 12.2(1)(b)
XXXXXXXXXX 2000-000955
J. P. Dunn
March 28, 2000
Dear Sir:
Re: Interest deductibility - Prescribed Annuities
We are writing in response to your letter of February 14, 2000 in which you had requested information regarding the deductibility of interest on money borrowed which is used to purchase a "prescribed annuity contract".
Pursuant to subparagraph 20(1)(c)(i) of the Income Tax Act (the "Act"), interest on borrowed money used to acquire a "life insurance policy", the definition of which includes an annuity contract, is specifically not allowed unless it falls within the ambit of subparagraph 20(1)(c)(iv) of the Act. Subparagraph 20(1)(c)(iv) of the Act allows the deductibility of interest on funds borrowed to purchase an annuity contract which is subject to the accrual rules contained in section 12.2 of the Act. Those accrual provisions, however, do not apply with respect to a "prescribed annuity contract" by virtue of paragraph 12.2(1)(b) of the Act. As a consequence thereof, interest on borrowed money used to acquire a "prescribed annuity contract" would not be deductible from income.
We trust the above comments are of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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