4 September 1998 External T.I. 9804795 - FORGIVENESSS OF UNPAID AMOUNTS

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: forgivenes of unpaid amounts

Position: general comments

Reasons:

XXXXXXXXXX 									980479
B. Kerr
Attention: XXXXXXXXXX 

September 4, 1998

Dear Sirs:

Re: Forgiveness of Unpaid Amounts

This is in response to your letter of February 23, 1998, concerning the application of the provisions of section 80 and subsections 78(1), and 212(1) of the Income Tax Act (the “Act”).

Our Comments

The situation described in your letter involves an actual fact situation. As it relates to a proposed transaction assurance as to tax consequences will only be given in an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information 70-6R3 dated December 30, 1996 issued by Revenue Canada. However, we can provide the following general comments.

The debt forgiveness rules in Section 80 of the Act apply whenever a commercial obligation is settled for an amount that is less than the principal amount thereof. Generally, the difference between these two amounts is the forgiven amount. Paragraph 80(2)(b) deems the interest payable by a debtor to be an obligation issued by the debtor that has a principal amount. However, where section 78 has been applied to the interest it is considered to be an excluded obligation and as such its principal amount is excluded from the forgiven amount

The decision in the Quebec Cartier Mining, 84 DTC 1348, case held that the word “credits” in subsection 212(1) is not to be used in an accounting sense but should be given the meaning of “makes available to” to establish whether amounts should be subject to Part XIII.

We trust that these comments will be of assistance.

Yours truly,

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