basis (that is, daily as the interest is earned),
depending upon the taxpayer’s normal
computation method. Regardless of the method chosen, the
taxpayer had to be
consistent from year to year per type of investment
A voluntary change from the cash
or receivable basis to the accrual basis was permitted, but not vice versa
. When such a
change took place, all past unreported interest had to be brought into income.
Although the above general principle continues to apply,
current legislation effectively
requires the accrual of interest not reported on either the cash or receivable basis
Corporations report accrued interest not otherwise reported at the year-end.
report accrued interest on the annual anniversary of debt instruments and not previously
included in income.
ITA 12(9) makes the point that it is interest that accrues while the
taxpayer owns the debt instrument that is required to be inccluded in income.
Corp. III acquired a 10 per cent 5-year $60,000 investment certificate on
August 1, 20X4. All interest, which is computed on a straight-line basis, is
receivable on maturity. The Corp has a December 31 year-end. Corp III
reports accrued interest as follows:
Dec. 31, 20X4 – $2,500
Dec. 31, 20X7 – $6,000
Dec. 31, 20X5 – $6,000
Dec. 31, 20X8 – $6,000
Dec. 31, 20X6 – $6,000
Dec. 31, 20X9 – $3,500
An individual acquired a 10 per cent 5-year $60,000 investment certificate
on August 1, 20X4. All interest, which is computed on a straight-line basis,
is receivable on maturity. The individual reports accrued interest as
20X4 – nil
20X5 – $6,000 (from August 1, 20X4 to July 31, 20X5)