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Ottawa, October 31, 2003
2003-055

• Proposed Amendments to the Income Tax Act Related to the Deductibility of Interest and Other Expenses Related to a Source.

• Notes on Proposed Amendments to the Income Tax Act.

The Department of Finance today released for public comment draft proposals regarding the deductibility of interest and other expenses for income tax purposes. These proposals, along with income tax interpretation bulletin IT-533, Interest Deductibility and Related Issues, released today by the Canada Customs and Revenue Agency, form a coordinated Government response on the deductibility of interest and other expenses.

This announcement follows up on a statement in the February 18, 2003, budget that the Department of Finance would propose measures to provide continuity in this important area of the law.

The proposed legislative amendments and draft interpretation bulletin are aimed at clarifying how the income tax system links the deductibility of certain expenses and losses to a taxpayer’s prospects for profit, objectively determined. The proposals include specific Income Tax Act rules that require that there be a "reasonable expectation of profit" from a business or property for a taxpayer to realize a loss from the business or property, and that make clear that profit in this sense does not include capital gains. These measures will reaffirm many current practices that support the deductibility of interest, including those relating to the deductibility of interest on money borrowed to purchase common shares.

The package released today includes legislative proposals and explanatory notes with examples. These proposals are intended to have effect for taxation years beginning after 2004. The Department invites the public and tax professionals to comment on the proposals by December 31, 2003.

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