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:
Possible application of section 79 (pre Feb/94) and subsection 80.01(9) (post Feb/94) to the same amount
Position TAKEN:
Although possible, would not be assessed - also, 4(4) would appear to preclude double inclusion
Reasons FOR POSITION TAKEN:
Intent of legislation
950798
XXXXXXXXXX J.P. Dunn
Attention: XXXXXXXXXX
July 31, 1995
Dear Sirs:
Re: Sections 79 and 80 of the Income Tax Act
We are writing in response to your correspondence of March 17, 1995 with respect to the application of sections 79 and 80 of the Income Tax Act (the "Act") to a mortgage foreclosure in which the property which was the subject of the mortgage was, prior to February 22, 1994, either acquired or reacquired by the creditor as described in section 79 of the Act. We apologize for the delay in responding to your letter.
As we understand it, the situation contemplated in your letter is such that the value of the property which was the subject of the mortgage is, upon foreclosure, insufficient to fully discharge the outstanding principal and accrued interest on the debt. Accordingly, as described by yourself, the creditor obtains a "deficiency judgment" for the remaining outstanding amount.
Upon the acquisition or reacquisition, as the particular case may be, of the property by the creditor, paragraph 79(c) of the Act would have deemed the debtor to have received proceeds of disposition for the subject property equal to the principal amount of the outstanding indebtedness. Also, subsection 80(1) of the Act may, by virtue of subsection 80(4), have been applicable to the debtor in respect of any unpaid accrued interest outstanding at the time of foreclosure to the extent that the debt was not one which would otherwise be excluded from such application by virtue of the circumstances referred to any of paragraphs (c) to (h) thereof. Should any payments be made by the debtor pursuant to the "deficiency judgment" subsequent to the acquisition or reacquisition of the property by the creditor, paragraph 79(d) of the Act would have deemed such payments to be a loss of the debtor from the disposition of the property which was the subject of the mortgage.
You have also requested our comments regarding the application of either or both of sections 79 and 80 of the Act in the event that the "deficiency judgment" becomes "statute-barred".
Regardless of whether or not the effect of such an event is that the debtor's liability to pay is extinguished, it is our view that section 80 of the Act would not have been applicable by virtue of the exclusion in paragraph (e) thereof in that the full outstanding principal amount of the mortgage was subject to the provisions of section 79 of the Act upon the foreclosure.
In the event that the "deficiency judgment" was issued prior to February 22, 1994 and becomes "statute barred" subsequent to 1996, it is our view that, generally, the Department would not seek to apply any of revised subsections 80(4) to (13) inclusive of the Act in respect of the deemed settlement of the amount which was the subject of the "deficiency judgment" as the full amount of the debt (of which the amount of the "deficiency judgment" is a portion) was previously considered in the application of old section 79 of the Act.
We trust that this is the information which you require.
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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