This provision is meant to ensure that participants' deductions will be limited to funds that are actually at risk. These rules generally involve debts for which participants are not fully at risk. The unpaid principal of any financing associated with the purchase of a tax shelter will reduce the cost or expense related to that tax shelter.

There may be other ways for the rules to apply to the participant. The measure ensures that the tax benefits are limited to the funds at risk only. This will reduce the tax benefit available to the participant.

We consider the unpaid principal of a financing to be a limited-recourse:

• where the rate of interest is equal to or greater than the prescribed rate of interest at the time the indebtedness arose or during its term, and interest is not paid within 60 days after the investor's taxation year; and
• where bona fide arrangements for repayment are not made.

We consider that bona fide arrangements exist when:

• there is a written agreement for repayment of the principal and interest within a reasonable period of not more than 10 years, and
• where interest is paid at least annually.

However, in some circumstances we may consider loans repayable within 10 years to be a limited-recourse debt. For example, the 10-year rule cannot be avoided through a series of loans and repayments.

Property is defined in subsection 248(1) of the Income Tax Act and means property of any kind whatever, whether real or personal and whether tangible or intangible, including a right of any kind and a share or a chose in action (right to sue). Two types of properties excluded from the definition of a tax shelter are flow-through shares and prescribed property.