6 December 1994 External T.I. 9429205 - section 80

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:

Interpretation of phrase "restructuring of debt in connection with a proceeding commenced in a court in Canada before February 22, 1994" as that phrase is used in the draft legislation to amend section 80.

Position TAKEN:

Restructuring of debt can occur subsequent to court proceeding provided it is in connection with that court proceeding which commenced prior to Feb. 22, 1994.

Reasons FOR POSITION TAKEN:

Discussion with Dept. of Finance.

				942920

XXXXXXXXXX		S.J. Tevlin

Attention: XXXXXXXXXX

December 6, 1994

Dear Sirs:

Re: Grandfathering of Section 80

We are writing in response to your letter of November 15, 1994 wherein you requested our opinion as to the interpretation of the phrase "restructuring of debt in connection with a proceeding commenced in a court in Canada before February 22, 1994" contained within paragraph 28(2)(a)(iii) of draft legislation released July 12, 1994 (the "draft legislation") to amend section 80 of the Income Tax Act.

Your concern is that the following two interpretations might be taken of the relevant phrase.

One interpretation might be that grandfathering would only apply to a debt restructuring that was specifically contemplated by a court proceeding initiated before February 22, 1994. If this was the case a creditor would have to have provided for the restructuring in the court proceeding for the debt restructuring to be grandfathered.

A second interpretation is that any debt restructuring connected in any manner with a court proceeding would be grandfathered provided the proceeding commenced before February 22, 1994. Under this interpretation the criteria would be that a court proceeding pertaining to the debt was commenced by the creditor before February 22, 1994 which resulted in a settlement and consequential restructuring after February 21, 1994.

Comments

It is our opinion that only the Canadian court proceeding pertaining to the debt has to have commenced prior to February 22, 1994 in order to satisfy the proposed "grandfathering" rules. Any negotiated settlement and restructuring, that is in connection with that court proceeding, could occur subsequent to February 22, 1994.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch