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Unformatted text preview: rincipal of the debentures or instruments concerned (see Example 11 above). Interest Apportionment 33. Section 16(2C) allows for apportionment of interest expenses in three ways – The provision applies to arrangements in relation to interest expenses payable on any debentures or instruments within an issue. This allows for apportionment of interest expenses when only some of the debentures or instruments issued are held by the borrower or a connected person of the borrower.
17 The provision also applies to arrangements that cover interest expenses payable in the interest on any debentures or instrument concerned. This allows apportionment of interest expenses in the case where the beneficial interest in a debenture or an instrument is shared among a number of persons, and only some of such persons are connected with the issuer. Where the arrangement is in place for only part of the basis period of the issuer during which the loan interest claimed for deduction was incurred, the interest expenses can be apportioned on a time basis. This means that only the portion of interest expenses attributable to the period of time during which the arrangement was in place will be disallowed from deduction. Example 14 Corporation P issued debentures in amount of $100M in a recognized overseas stock market. Out of the issue, an associated company of Corporation P subscribed $80M and acquired the remaining $20M debentures from the market in the middle of the year of assessment. During the year of assessment concerned total interest in the amount of $10M was paid. Corporation P adopts a basis period that corresponds to a year of assessment (i.e. for year ended 31 March). The interest deduction calculation will be as follows – ($M) Interest on $80M debentures subscribed by the associated company Reduced by the amount attributable to the holding of the associated company Balance deductible 8 8 0 18 Interest on the $20M debentures acquired by the associated company in the middle of the year Reduced by the amount attributable to the holding of the associated company (183 / 365 x $2M) Interest on this portion of debenture...
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