Section 94(1) of the Income Tax Act targets bond washing; interest is taxed as owner's income unless proven otherwise.

Section 94(1) of the Income Tax Act addresses bond washing transactions, where an owner sells or transfers securities and then reacquires them, resulting in interest being payable to someone other than the owner. In such cases, the interest is deemed to be the owner's income for tax purposes. However, if the owner or a beneficial interest holder proves to the Assessing Officer that there was no tax avoidance, or that any avoidance was exceptional and not systematic, and did not occur in the previous three years, the provisions do not apply. Buying back includes acquiring similar securities without increasing tax liability.

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