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1 Can. Tax'n 46 (1979)


In the United States, generally all interest payments are deductible. In Canada, by contrast, only interest that is incurred for a business purpose is deductible. In both countries, however, the deduction for interest paid on debts connected with the acquisition of a personal asset is commonly analyzed and defended as if it were a tax expenditure. Thus, in the United States the "Deductibility of Mortgage Interest on Owner-Occupied Homes" (which constitutes about 60 per cent of all deductions for interest paid) and the "Deductibility of Interest on Consumer Credit" are included in all published tax expenditure lists. In Canada, the recent debate over whether residential mortgage interest should be deductible, see 1 Canadian Taxation (No. 3) 23-29 (1979) and 1 Canadian Taxation (No. 1) 38 (1979), has been carried on almost exclusively in tax expenditure terms. The proposed deduction has been defended and analyzed as a housing measure and as a measure to stimulate the economy. In this article, Professor Gunn argues that the deduction for interest on personal debt is not a tax expenditure but instead is a proper deduction in a normative income tax base. He thus justifies a deduction for personal interest by reference solely to tax criteria (as opposed to expenditure criteria). His article is written from the point of view of the United States tax position, which at present does not distinguish between interest income on business and personal loans. This, Professor Gunn argues, is the theoretically correct position.


Reprinted with permission of Canadian Taxation.

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