Income Tax Act

Marginal note:Borrowed money used to earn income from property

• 20.1 (1) Where

  • (a) at any time after 1993 borrowed money ceases to be used by a taxpayer for the purpose of earning income from a capital property (other than real property or depreciable property), and

  • (b) the amount of the borrowed money that was so used by the taxpayer immediately before that time exceeds the total of

    • (i) where the taxpayer disposed of the property at that time for an amount of consideration that is not less than the fair market value of the property at that time, the amount of the borrowed money used to acquire the consideration,

    • (ii) where the taxpayer disposed of the property at that time and subparagraph 20.1(1)(b)(i) does not apply, the amount of the borrowed money that, if the taxpayer had received as consideration an amount of money equal to the amount by which the fair market value of the property at that time exceeds the amount included in the total by reason of subparagraph 20.1(1)(b)(iii), would be considered to be used to acquire the consideration,

    • (iii) where the taxpayer disposed of the property at that time for consideration that includes a reduction in the amount of the borrowed money, the amount of the reduction, and

    • (iv) where the taxpayer did not dispose of the property at that time, the amount of the borrowed money that, if the taxpayer had disposed of the property at that time and received as consideration an amount of money equal to the fair market value of the property at that time, would be considered to be used to acquire the consideration,

  an amount of the borrowed money equal to the excess shall, to the extent that the amount is outstanding after that time, be deemed to be used by the taxpayer for the purpose of earning income from the property.

• Marginal note:Borrowed money used to earn income from business

  (2) Where at any particular time after 1993 a taxpayer ceases to carry on a business and, as a consequence, borrowed money ceases to be used by the taxpayer for the purpose of earning income from the business, the following rules apply:

  • (a) where, at any time (in this paragraph referred to as the “time of disposition”) at or after the particular time, the taxpayer disposes of property that was last used by the taxpayer in the business, an amount of the borrowed money equal to the lesser of

    • (i) the fair market value of the property at the time of disposition, and

    • (ii) the amount of the borrowed money outstanding at the time of disposition that is not deemed by this paragraph to have been used before the time of disposition to acquire any other property

    shall be deemed to have been used by the taxpayer immediately before the time of disposition to acquire the property;

  • (b) subject to paragraph 20.1(2)(a), the borrowed money shall, after the particular time, be deemed not to have been used to acquire property that was used by the taxpayer in the business;

  • (c) the portion of the borrowed money outstanding at any time after the particular time that is not deemed by paragraph 20.1(2)(a) to have been used before that subsequent time to acquire property shall be deemed to be used by the taxpayer at that subsequent time for the purpose of earning income from the business; and

  • (d) the business shall be deemed to have fiscal periods after the particular time that coincide with the taxation years of the taxpayer, except that the first such fiscal period shall be deemed to begin at the end of the business’s last fiscal period that began before the particular time.

• Marginal note:Deemed dispositions

  (3) For the purpose of paragraph 20.1(2)(a),

  • (a) where a property was used by a taxpayer in a business that the taxpayer has ceased to carry on, the taxpayer shall be deemed to dispose of the property at the time at which the taxpayer begins to use the property in another business or for any other purpose;

  • (b) where a taxpayer, who has at any time ceased to carry on a business, regularly used a property in part in the business and in part for some other purpose,

    • (i) the taxpayer shall be deemed to have disposed of the property at that time, and

    • (ii) the fair market value of the property at that time shall be deemed to equal the proportion of the fair market value of the property at that time that the use regularly made of the property in the business was of the whole use regularly made of the property; and

  • (c) where the taxpayer is a trust, subsections 104(4) to 104(5.2) do not apply.

• Marginal note:Amount payable for property

  (4) Where an amount is payable by a taxpayer for property, the amount shall be deemed, for the purposes of this section and, where subsection 20.1(2) applies with respect to the amount, for the purposes of this Act, to be payable in respect of borrowed money used by the taxpayer to acquire the property.

• Marginal note:Interest in partnership

  (5) For the purposes of this section, where borrowed money that has been used to acquire an interest in a partnership is, as a consequence, considered to be used at any time for the purpose of earning income from a business or property of the partnership, the borrowed money shall be deemed to be used at that time for the purpose of earning income from property that is the interest in the partnership and not to be used for the purpose of earning income from the business or property of the partnership.

• Marginal note:Refinancings

  (6) Where at any time a taxpayer uses borrowed money to repay money previously borrowed that was deemed by paragraph 20.1(2)(c) immediately before that time to be used for the purpose of earning income from a business,

  • (a) paragraphs 20.1(2)(a) to 20.1(2)(c) apply with respect to the borrowed money; and

  • (b) subsection 20(3) does not apply with respect to the borrowed money.