Ottawa is extending the deadline for submissions on its proposals on interest deductibility until Aug. 31, 2004. When it unveiled the proposals at the end of October, it asked for responses by end of 2003.

Under the new rules, the Canada Revenue Agency’s dreaded reasonable expectation of profit policy would become an official part of the Income Tax Act. Many commentators say the REOP test will hinder investment, particularly in dividend-bearing shares that cannot reasonably be expected to make a net profit for several years. A time limit on what constitutes reasonable expectation is not clearly laid out in the proposals.

In last year’s budget Ottawa announced its intention to bring in this legislation, which effectively overrules several Supreme Court of Canada decisions in favour of taxpayers. The court said that the CRA should not be allowed to use the REOP policy to deny entrepreneurs and investors the ability to deduct losses from income derived from business or property.

Prior to the SCC decisions, Canada Revenue had routinely denied claims for loss deductions if it judged that a given enterprise could not be expected to make a profit on a net income basis.