Matte – Tax Court of Canada finds that the settlement of forgivable advances to an employee for less than the outstanding amounts produced s. 6(15) income

The taxpayer, who was employed at a wealth management firm, had received over $1 million in interest-free loans (evidenced by promissory notes) from predecessors of his employer which, by their terms, were forgivable in the employer’s discretion as to 10% each year, and were required to be repaid as to the balance on termination of his employment. When he resigned, his employer sued him for the balance owing, and a settlement agreement was later reached pursuant to which the loans were discharged on payment of an agreed portion of their remaining balances (with part of such payments made by way of set-off against damages found to be owing by his employer to him.)

Ouimet J found that the difference between the amount so agreed to be paid and the balances owing constituted a taxable benefit to the taxpayer pursuant to ss. 6(15) and 6(1)(a) at the time of the release pursuant to the settlement agreement.

In rejecting a submission that, based on Merchant, the “loan” advances to the taxpayer had, in fact, been advances on his salary (which had been received in taxation years that were now statute-barred), Ouimet J noted that, unlike here, in Merchant “an entire year’s work [took] the form of cheques entered into the accounting records as loans” and “the employee in Merchant did not have to repay the amount from any source available to him.”

Neal Armstrong. Summaries of Matte v. The King, 2025 TCC 16 under s. 6(15), s. 12(11) – investment contract and s. 248(26).