Observations and Issues in respect of Section 18.2

Expanded rules relating to interest deductibility – Tracing in the
Inter-affiliate loan context

PwC provides its commentary on Bill C-28’s section 18.2 rules based on our belief that the Canada Revenue Agency must develop guidelines to assist taxpayers and their advisors in determining whether and how the rules apply to them. The primary focus of our commentary targets the issue of tracing. To ensure a fair and reasonable application of the rules that are consistent with their intent, our commentary also includes examples and suggestions as on how the rules will apply in particular situations.

In our commentary, we discuss the following issues:

  • Application of subparagraph (i) and (ii) in the context of “borrowed money” versus an “amount payable for property”
  • The meaning of “directly or indirectly” in subparagraphs (i) and (ii)
  • Interest on “Amounts Payable for Property” in subparagraph 18.2(3)(a)(ii)
  • Acquisitions funded with borrowed funds
  • The practical limitations in the ability to trace

This submission reiterates taxpayers’ needs for clarity and certainty when applying the tax rules and that without such certainty, the rules would fail to serve the people they were meant to serve. PwCmaintains that our comments and recommendations aim to improve the legislation and allow the government to meet its goal of increasing the effectiveness and fairness of the tax system.

784 KB Observations and Issues in respect of Section 18.2: Expanded rules relating to interest deductibility – Tracing in the Inter-affiliate loan context (784 KB)
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