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.
962844
XXXXXXXXXX M.P. Sarazin
September 24, 1996
Dear Sir\Madam:
Re: Capital Gains Tax - Real Estate Investment
This is in reply to your letter dated August 13, 1996, wherein you requested our comments with respect to the reporting requirements where the full amount of a debt under a non-interest bearing promissory note owing to your father is repaid. Your letter indicates that the borrowed funds were used to acquire a rental property that you will continue to hold but you are not sure as to whether capital gains will result on the repayment of the promissory note and how to report, for tax purposes, any capital gains.
Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. However, we offer the following general comments which are not binding on the Department.
A taxpayer's capital gain is defined in paragraph 39(1)(a) of the Income Tax Act (the "Act") to be the taxpayer's gain for the year from the disposition of any property other than certain specific property identified in subparagraphs 39(1)(a)(i) to (v) of the Act. Where a debtor repays the face value of a debt obligation to the creditor, there would not be a gain realized by either the debtor or the creditor.
There are no reporting requirements with respect to the repayment of the principal amount of debt obligations. Consequently, you do not have to advise the Department that you are repaying or have repaid the principal amount of the promissory note. However, Interpretation Bulletin IT-293R, and the Special Release thereto, discusses the tax implications where a debt obligation is settled at an amount that is less than the principal amount of the debt.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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