Jared Mackey and Marshall Haughey Examine the Limits of Interest Deductibility under Subparagraph 20(1)(c)(ii)

Subparagraph 20(1)(c)(ii) provides for the deduction of interest on amounts payable for property acquired to produce income from that property or from a business. Although the provision is relied upon frequently, there is limited guidance on its application in many common commercial scenarios, including asset acquisitions, intercompany financings, refinancings, and corporate reorganizations. In this paper, Jared Mackey and Marshall Haughey thoroughly examine the component elements of subparagraph 20(1)(c)(ii), stressing the need for a detailed textual, contextual, and purposive analysis. The paper seeks to equip taxpayers and practitioners with a robust framework for navigating the complexities of interest deductibility under subparagraph 20(1)(c)(ii). The authors also contend that the existing language of subparagraph 20(1)(c)(ii) may not fully align with its legislative intent. They advocate for amendments to improve certainty and predictability, and ensure consistency with subparagraph 20(1)(c)(i), in an evolving financing landscape.

The paper, entitled "Interest Deductibility under Subparagraph 20(1)(c)(ii)", is published by the Canadian Tax Foundation in Report of Proceedings of the Seventy-Fifth Tax Conference, 2023 Conference Report, and can be accessed on TaxFind.