Income Tax Regulations (C.R.C., c. 945)

Marginal note:Convertible obligation

• 9103. (1) For the purposes of section 9102, if the terms of a specified debt obligation of a taxpayer give the taxpayer the right to exchange the obligation for shares of the debtor or of a corporation related to the debtor

  • (a) subject to paragraph (b), the right shall be disregarded (whether it has been exercised or not); and

  • (b) if 5% or more of the cost of the obligation to the taxpayer is attributable to the right, the cost is deemed to equal the amount by which the cost exceeds the portion of the cost attributable to the right.

• (2) [Repealed, SOR/2009-222, s. 7]

• Marginal note:Amendment of obligation

  (3) If the terms of a specified debt obligation of a taxpayer are amended at any time in a taxation year of the taxpayer to change the timing or amount of any payment to be made, at or after that time, under the obligation, the taxpayer’s accrued returns for the taxation year and for each subsequent taxation year are to be redetermined under section 9102 using a reasonable method that fully gives effect, in those accrued returns, to the alteration to the payments under the obligation.

• Marginal note:Obligations acquired before financial institution rules apply

  (4) If a taxpayer held a specified debt obligation at the beginning of the taxpayer’s first taxation year (in this subsection referred to as the “initial year”) for which subsection 142.3(1) of the Act applied to the taxpayer in respect of the obligation, the following rules apply:

  • (a) the taxpayer’s accrued return from the obligation for the initial year or a subsequent taxation year shall not include an amount to the extent that the amount was included in computing the taxpayer’s income for a taxation year preceding the initial year; and

  • (b) if interest on the obligation in respect of a period before the initial year becomes receivable or is received by the taxpayer in a particular taxation year that is the initial year or a subsequent taxation year, and all or part of the interest would not, but for this paragraph, be included in computing the taxpayer’s income for any taxation year, there shall be included in determining the taxpayer’s accrued return from the obligation for the particular taxation year the amount, if any, by which

    • (i) the portion of the interest that would not otherwise be included in computing the taxpayer’s income for any taxation year

    exceeds

    • (ii) the portion of the cost of the obligation to the taxpayer that is reasonably attributable to that portion of the interest.

• Marginal note:Prepaid interest — transition rule

  (5) If, before November 1994 and in a taxation year that ended after February 22, 1994, a taxpayer received an amount under a specified debt obligation in satisfaction, in whole or in part, of the debtor’s obligation to pay interest in respect of a period after the taxation year,

  • (a) the amount may, at the election of the taxpayer, be included in determining the taxpayer’s accrued return for the taxation year from the obligation; and

  • (b) if the amount is so included, the taxpayer’s accrued returns for subsequent taxation years from the obligation shall not include any amount in respect of interest that, because of the payment of the amount, the debtor is no longer required to pay.