1 September 1993 Income Tax Severed Letter 9316695 - Forgiveness of Loans

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                           5-931669
XXXXXXXXXX                                 M. Shea-DesRosiers
                                           (613) 957-8953

September 1, 1993

Dear Sir:

Re: Subsection 6(15) and paragraph 6(1)(a) of the Income Tax Act (the "Act")

This is in reply to your letter of June 1, 1993 wherein you requested our opinion regarding the income tax implications for an employee of a forgiveness of a loan by his/her employer as to whether an amount must be included in his/her income on account of the forgiveness of such a loan. We apologize for the delay in replying to your letter.

You have outlined an actual fact situation relating to a past transaction. The review of such transactions generally falls within the responsibility of the District Taxation Offices. However, we can offer the following general comments which we hope will be of assistance to you.

Where an employee receives a loan from his/her employer in the course of his employment and that loan or part thereof is subsequently forgiven, for the purposes of paragraph 6(1)(a) of the Act, the employee shall be deemed to have received a benefit from employment which must be included in his/her income. The value of the benefit is calculated under subsection 6(15) of the Act to be the amount of the loan forgiven minus any payment in relation thereto. For example, if an employee owes his/her employer $50,000 and the employer settles or extinguishes the loan by having the employee pay only $25,000 of the loan, the employee will be required to include in his income, as a benefit from employment, the $25,000 which was forgiven.

The legislation as discussed above is very clear on this question of forgiveness of a loan to an employee and there is no provision in the Act that allows relief from taxation in such a situation.

Yours truly,

for Director Financial Industries Division Rulings Directorate