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: Is a debt write-off included in income?
Position: Insufficient facts given to make any determination.
Reasons: No facts given.
XXXXXXXXXX
2013-050915
Whitney Dunn
December 3, 2013
Dear XXXXXXXXXX:
Re: Debt write-off
We are writing in response to your letter of October 17, 2013 wherein you asked us to confirm that a person whose debt has been written off does not have to report any amount in respect of the write-off in income.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act"). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
The determination of the income tax consequences pertaining to any debt forgiveness can only be made following a complete review of all the relevant facts and circumstances of the particular situation. Since you have not provided us with any information we are unable to provide you with any specific comments. However, we would like to point out that the Act does contain various rules that could apply to a debt forgiveness situation such that an income inclusion could result depending on the particular circumstances.
Our interpretation bulletin IT-421R2, "Benefits to individuals, corporations and shareholders from loans or debt", discusses some of those circumstances. For example, as discussed at paragraph 11, a debt forgiven in the context of an employment relationship, or by a corporation to a shareholder, could result in an income inclusion. You can find that bulletin on our website at: http://www.cra-arc.gc.ca/E/pub/tp/it421r2/.
Given all the inherent complexities of the rules relating to debt forgiveness, you may wish to seek independent professional tax advice.
We trust our comments will be of assistance.
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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