29 April 1994 External T.I. 9403905 - FORGIVEN DEBTS

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.

Principal Issues:

Anomaly in section 80 treatment of cash basis farmer as

compared to soneone reporting on the accrual basis.

Position TAKEN:

Agreed with taxpayer and advised him that section 80 was
under consideration by Finance

Reasons FOR POSITION TAKEN:

Had the taxpayer accrued the liabilities he would have had
losses to apply the section 80 amount against before

reducing the cost of his depreciable assets.

940390
XXXXXXXXXX A.M. Brake

Attention: XXXXXXXXXX

April 29, 1994

Dear Sirs:

Re: Cash Basis Farmer, Sections 28 and 80

This is in reply to your letter of January 17, 1994, wherein you expressed concern that the application of section 80
produces unfair results to a person reporting on the cash basis as compared to someone who reports on an accrual basis. The example you provided shows the accrual basis reflecting a loss of $850,000 and "nil" loss for the cash basis with each having trade debts of $850,000 and depreciable assets of $600,000. Since the cash basis would not have any losses to grind, the depreciable assets would be ground to "nil" whereas the accrual position would be that the section 80 amount would be fully applied against the losses and the cost of the depreciable assets would not reduced.

We agree that there appears to be an anomaly in the application of section 80 as reflected in your example.

Section 80 is under review by the Department of Finance (please see February 22, 1994 budget papers) and this particular matter will be brought to their attention.

Reference to statute provisions such as section, subsection, etc., mentioned herein will in all cases, unless otherwise stated, relate to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993.

We thank you for bringing this matter to our attention.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch