17 March 1997 External T.I. 9706685 - FORGIVENESS OF DEBT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Forgiveness of debt and a bankrupt

Position:

No position taken, question of fact

Reasons:

Not enough information provided, general information given

XXXXXXXXXX 970668

Attention: XXXXXXXXXX

March 17, 1997

Dear Sirs:

Re: Section 80 of the Income Tax Act (the "Act")

This is in reply to your facsimile of March 11, 1997 to the Communications Branch, Media and Ministerial Relations which was forwarded to us for reply. In the facsimile you request we look at a particular situation and the application of section 80 of the Income Tax Act (the "Act") to this fact situation.

The situation described in your letter appears to be an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Where a completed transaction is involved, the enquiry should be addressed to your local Tax Services Office. Consequently, we can only offer the following general comments.

In order for section 80 of the Act to apply there has to be a "forgiven amount". In general the forgiven amount, at any time, is determined by the formula A - B, where

Ais the lesser of the amount for which the obligation was issued and the principal amount of the obligation and,

Bis the aggregate of nine different elements, one of which is:

(i)where the debtor is a bankrupt at that time, the principal amount of the obligation.

The term "debtor" is defined in subsection 80(1) as; " includes ... any partnership". It is unclear from the facts presented in the facsimile who the debtor is in this case.

Pursuant to section 248 of the Act, bankrupt is defined as; " has the meaning assigned by the Bankruptcy and Insolvency Act" It is a question of fact whether the partnership has in fact become a bankrupt which can only be determined upon examination of all details in the case.

Based on the facts presented, we can not make a determination of whether section 80 of the Act applies as it is unclear who the debtor is and if the debtor in the case is a bankrupt.

In addition, if the creditor has taken possession of the property as described in section 79 of the Act, that provision may be applicable in the circumstances to deem that the debtor has received proceeds of disposition for the property equal to the amount of the outstanding debt. This application would have a bearing on the amount of any terminal loss, if any, arising on the surrender of the property to the creditor.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch