12 November 1998 External T.I. 9823175 - INTERPRETATION BULLETIN IT -119R4

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: Does "paid" as used in IT 119R4 require that an amount need to be paid in cash?

Position: No, only that the obligation be discharged

Reasons: Money or money's worth

XXXXXXXXXX 982317
C. Tremblay
November 12, 1998

Dear Sir

Re: Interpretation Bulletin IT-119R4

This is in reply to your letter of August 30, 1998, regarding the use of the word “paid “ in paragraph 36 of the above named IT bulletin.

According to your reference (Webster’s Third New International Dictionary), the term “pay” can be defined as “... to discharge an obligation;...to engage for money;...to discharge indebtedness...” The Concise Oxford Dictionary defines paid by referring us to the word “pay” which it defines as to give (person) what is due in discharge of debt or for services done or goods received. Black’s Law Dictionary also does not define paid; however, it defines the verb “pay” as meaning to discharge a debt by tender of payment due; to deliver to a creditor the value of a debt, either in money or in goods, for his acceptance. In deciding a case on the subject under former paragraph 8(2)(b) of the Act, (Estate of Thomas James Johnston v MNR 64 DTC 204) now subsection 15(2) of the Act, the Tax Appeal Board ruled that the statute requires repayment in money or money’s worth, but, where repayment is being made in money’s worth, the burden is on the taxpayer to prove the sufficiency in all respects of such repayment. Clearly, in our view, cash is not required to discharge an obligation.

We agree that a journal entry recording a credit in a shareholder loan account does not, in and by itself, constitute the payment of the salary or dividend nor make the transaction legally effective. However, other evidence, such as the appropriate documentation in the minutes of a directors’ meeting and the T-4 or T-5 reporting of the relevant amount would demonstrate that a payment has occurred. Where a credit to a shareholder’s loan account or a reduction of a shareholder debt constitutes the payment of a bonus or the payment of a dividend, the amount considered to have been received by the shareholder as a bonus or dividend is equal to the amount so credited or by which the debt is so reduced, whichever is the case.

We trust our comments will be of assistance to you

Yours truly,

J. Gibbons , CGA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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