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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Debt Forgiveness - Disposition of a Canada Security
This is in reply to your correspondence of January 25, 1993 wherein you had requested the views of the Department regarding a situation in which a life insurance company forgives a debt which is, in respect of the life insurer, a "Canada security" as that term is defined in paragraph 138(12)(c) of the Income Tax Act (the "Act"). You had further noted that, as a result of the financial difficulties of the debtor, the debt has become uncollectible.
It is our opinion that, regardless of whether the debt is or is not currently collectible, the forgiveness of it by the creditor would constitute a disposition of the debt. It would, however, be a question of fact as to whether a forgiveness had taken place in any particular situation. In circumstances in which the creditor has, for no consideration, unequivocably extinguished the debt and given up all rights and remedies to collection of the amount that would otherwise be owing by the debtor, it is our view that the "Canada security" would, at that time, be disposed of for no proceeds.
While we trust that our comments are of assistance to you, we would caution that they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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