Income Tax Regulations — 7000
7000 (1) For the purpose of subsection 12(9) of the Act, each of the following debt obligations (other than a debt obligation that is an indexed debt obligation) in respect of which a taxpayer has at any time acquired an interest is a prescribed debt obligation: (a) a particular debt obligation in respect of which no interest is stipulated to be payable in respect of its principal amount, (b) a particular debt obligation in respect of which the proportion of the payments of principal to which the taxpayer is entitled is not equal to the proportion of the payments of interest to which he is entitled, (c) a particular debt obligation in respect of which it can be determined, at the time the taxpayer acquired the interest therein, that the maximum amount of interest payable thereon in a year ending after that time is less than the maximum amount of interest payable thereon in a subsequent year, other than a debt obligation that (i) is described in paragraph (a) or (b), or (ii) meets the following conditions: (A) it is issued by, or by an agency of, the Government of Canada or a province, and (B) it satisfies the conditions in subparagraphs (2)(c.1)(i) and (ii); and (d) a particular debt obligation, other than one described in paragraph (a), (b) or (c), in respect of which the amount of interest to be paid in respect of any taxation year is, under the terms and conditions of the obligation, dependent on a contingency existing after the year, and, for the purposes of this subsection, a debt obligation includes, for greater certainty, all of the issuer’s obligations to pay principal and interest under that obligation. (2) For the purposes of subsection 12(9) of the Act, the amount determined in prescribed manner that is deemed to accrue to a taxpayer as interest on a prescribed debt obligation in each taxation year during which he holds an interest in the obligation is, (a) in the case of a prescribed debt obligation described in paragraph (1)(a), the amount of interest that would be determined in respect thereof if interest thereon for that year were computed on a compound interest basis using the maximum of all rates each of which is a rate computed (i) in respect of each possible circumstance under which an interest of the taxpayer in the obligation could mature or be surrendered or retracted, and (ii) using assumptions concerning the interest rate and compounding period that will result in a present value, at the date of purchase of the interest, of all the maximum payments thereunder, equal to the cost thereof to the taxpayer; (b) in the case of a prescribed debt obligation described in paragraph (1)(b), the aggregate of all amounts each of which is the amount of interest that would be determined in respect of his interest in a payment under the obligation if interest thereon for that year were computed on a compound interest basis using the specified cost of his interest therein and the specified interest rate in respect of his total interest in the obligation, and for the purposes of this paragraph, (i) the specified cost of his interest in a payment under the obligation is its present value at the date of purchase computed using the specified interest rate, and (ii) the specified interest rate is the maximum of all rates each of which is a rate computed (A) in respect of each possible circumstance under which an interest of the taxpayer in the obligation could mature or be surrendered or retracted, and (B) using assumptions concerning the interest rate and compounding period that will result in a present value, at the date of purchase of the interest, of all the maximum payments to the taxpayer in respect of his total interest in the obligation, equal to the cost of that interest to the taxpayer; (c) in the case of a prescribed debt obligation described in paragraph (1)(c), other than an obligation in respect of which paragraph (c.1) applies, the greater of (i) the maximum amount of interest thereon in respect of the year, a