The End of Interest Arbitrage: Toward a Restrictive Interest Deductibility Regime.

The authors discuss the historical and current framework of interest deductibility in Canadian tax legislation, emphasizing its significance for businesses in the context of tax planning. They trace the evolution of the relevant laws, from the Income War Tax Act of 1917 to the current legislation, highlighting key provisions such as paragraph 20(1)(c) of the Income Tax Act. Despite longstanding limitations, businesses have generally been able to deduct the interest expense they have incurred on loans used to earn income. However, recent global initiatives, particularly the base erosion profit shifting (BEPS) project of the Organisation for Economic Co-operation and Development (OECD), have intensified the scrutiny on interest deductibility as a means of shifting profit to low-tax jurisdictions. The authors also examine recent legislative changes aimed at curbing interest arbitrage, and they compare these restrictions internationally. [ABSTRACT FROM AUTHOR]