6 November 2012 External T.I. 2012-0452531E5 - Satisfactory Evidence of Payment

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.

Principal Issues: Whether a demand note payable which is accepted as absolute payment of salary owing to an employee constitutes satisfactory evidence of the payment of that salary.

Position: An amount may be considered to have been "paid" by promissory note if an agreement between the parties clearly indicates that the note was accepted as absolute payment. It should be noted that under paragraph 153(1)(a) of the Act, an employer is required to withhold an amount from any remuneration that is being paid; additional evidence of payment is that the related payroll withholdings were remitted on time.

Reasons: The debt is satisfied by the receipt of a promissory note which has been accepted as absolute payment.

XXXXXXXXXX
2012-045253
Andrea Boyle, CGA

November 6, 2012

Dear XXXXXXXXXX:

Re: Satisfactory Evidence of Payment

I am writing in reply to your fax of June 20, 2012 in which you asked whether a demand note payable, which is accepted as absolute payment of salary owing to an employee, constitutes satisfactory evidence of the payment of that salary.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. We are, however, prepared to offer the following general comments, which may be of assistance.

Whether accrued and unpaid remuneration is actually paid within the 180-day period involves a finding of fact that can only be established after examining all the evidence that would support such a conclusion.

The best evidence of payment is that the related payroll withholdings were remitted on time; however, this is not the only acceptable evidence of such payment. Other evidence that would corroborate the payment of the wages would include the issuance of a T4 slip to the employee, the reporting of the income by the employee, or the actual payment of the amount (by cheque, cash, or journal entry crediting the employee's account with the payer).

An ordinary promissory note is generally regarded as a promise to pay a debt at a later date, and not as payment of the debt on the date on which the note was issued. However, an amount may be considered to be "paid" by a promissory note if an agreement between the parties clearly indicates that the note was accepted as absolute payment.

It is important to note that paragraph 153(1)(a) of the Income Tax Act requires an employer to withhold an amount from any remuneration that is being paid. Subsection 100(1) of the Income Tax Regulations defines "remuneration" to include salary or wages, or commissions or other similar amounts paid to an officer or employee. Therefore an employer is required to remit source deductions on salary paid and issue a T4 to the employee. As previously indicated, the fact that related payroll withholdings are remitted on time constitutes very strong evidence of payment.

We trust that these comments will be of assistance.

Yours truly,

Doug Watson
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch