Income Tax Regulations — 9102
Fixed payment obligation not in default 9102 (1) For the purpose of paragraph 9101(1)(a), a taxpayer’s accrued return for a taxation year from a fixed payment obligation, under which each payment required to be made before the end of the year was made by the debtor when it was required to be made, shall be determined in accordance with the following rules: (a) determine, in the primary currency of the obligation, the portion of the taxpayer’s total return from the obligation that is allocated to each day in the year using (i) the level-yield method described in subsection (2), or (ii) any other reasonable method that is substantially similar to the level-yield method; (b) if the primary currency of the obligation is not Canadian currency, translate to Canadian currency the amount allocated to each day in the year, using a reasonable method of translation; and (c) determine the total of all amounts each of which is the Canadian currency amount allocated to a day, in the year, at the beginning of which the taxpayer holds the obligation. Level-yield method (2) For the purpose of subsection (1), the level-yield method for allocating a taxpayer’s total return from a fixed payment obligation is the method that allocates, to each particular day in the period that begins on the day following the day on which the taxpayer acquired the obligation and that ends on the day on which the obligation matures, the amount determined by the formula (A + B - C) × D where A is the cost of the obligation to the taxpayer (expressed in the primary currency of the obligation); B is the total of all amounts each of which is the portion of the taxpayer’s total return from the obligation that is allocated to a day before the particular day; C is the total of all payments required to be made under the obligation after it was acquired by the taxpayer and before the particular day; and D is the rate of interest per day that, if used in computing the present value (as of the end of the day on which the taxpayer acquired the obligation and based on daily compounding) of all payments to be made under the obligation after it was acquired by the taxpayer, produces a present value equal to the cost to the taxpayer of the obligation (expressed in the primary currency of the obligation). Other specified debt obligations (3) For the purpose of paragraph 9101(1)(a), a taxpayer’s accrued return for a taxation year from a specified debt obligation, other than an obligation to which subsection (1) applies, shall be determined (a) using a reasonable method that, (i) taking into account the extent to which the obligation differs from fixed payment obligations, is consistent with the principles implicit in the methods that can be used under subsection (1) for fixed payment obligations, and (ii) is in accordance with generally accepted accounting practice for the measurement of profit from debt obligations; and (b) on the basis of reasonable assumptions with respect to the timing and amount of any payments to be made by the debtor under the obligation that are not fixed in their timing or amount (expressed in the primary currency of the obligation). Accrual adjustment nil (4) For the purposes of paragraphs 9101(1)(b) and (2)(a), if subsection 142.3(1) of the Act applies to a taxpayer for a particular taxation year in respect of a specified debt obligation and either the subsection did not apply in respect of the obligation for the taxpayer’s immediately preceding taxation year or the taxpayer did not own the obligation at the end of that immediately preceding taxation year, the taxpayer’s accrual adjustment in respect of the obligation for the particular taxation year is nil. Accrual adjustment (5) For the purposes of paragraphs 9101(1)(b) and (2)(a), if subsection (4) does not apply to determine a taxpayer’s accrual adjustment in respect of a specified debt obligation for a particular taxation year, the taxpayer’s accrual adjustment is the positive or negative amount deter