13 January 1993 Income Tax Severed Letter 923304A - Forgivable Loan

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.

923304
XXXXXXXXXX W.P. Guglich
(613) 957-2102

Attention: XXXXXXXXXX

January 13, 1993

Dear Sirs:

Re: Medical Doctor

This is in reply to your letter of October 28, 1992 concerning a medical doctor.

In your letter you have outlined what appears to be an actual fact situation related either to a past transaction or to an actual proposed transaction. If the situation described relates to an actual transaction which has already been implemented, the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling. However, we can provide you with the following general comments which we hope will be of assistance.

Our Views

• 1. The determination as to whether the income from the doctor's part-time practice and the residency income would be professional business income or employment income is dependent on all the details and facts in the case. The Federal Court of Appeals in Wiebe Door Services Ltd. v. M.N.R. [[1986] 2 C.T.C. 200] 87 DTC 5025 developed tests for determining whether an individual is carrying on business as an independent contractor or as an employee. These tests include (a) control test, (b) integration test, (c) the economic reality test and (d) the specific result test. You may also wish to refer to the analysis regarding this issue contained in the 1977 Conference Report of the Canadian Tax Foundation commencing at page 712.
• 2. Paragraph 12(1)(x) of the Income Tax Act ("the Act") requires the amount of the forgivable loan to be included in computing the doctor's income in the year the loan is received. Note, it is the Department's general position that where the conditions for repayment of a government loan are so remote that forgiveness of the debt is the usual result, the amount should pursuant to paragraph 12(1)(x) of the Act be included in income, as a forgivable loan even where the loan is not formally described as a forgivable loan.
• Where the amount of a loan is included in income under paragraph 12(1)(x) of the Act the exception to the forgiveness of debt rules in paragraph 80(1)(f) would apply and paragraphs 80(1)(a) & (b) would not be applicable.
• 3. The determination as to whether the doctor would be considered to be self-employed on his return to the community would be dependent on all the facts and details of the case including the contractual arrangement with the local community. Please refer to our comments above.

We trust our comments will be of assistance.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch