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.
SUBJECT: FOREGIVENESS OF DEBT-PRAIRIE PROV. TAX. CONFERENCE SECTION: 80(1)(b), REG 5400, 245(2)]
DRAFT
- PRAIRIE PROVINCES TAX CONFERENCE MAY 19 & 20, 1992
Question 11
Paragraph 80(1)(b) and Regulation 5400 of the Income Tax Act.
At a particular time during a taxation year, a taxpayer sells depreciable property and subsequently during the same year a debt or other obligation of the taxpayer is settled. Paragraph 80(1)(b) requires an excess amount to be applied firstly against the capital cost of depreciable property. Does this reference to depreciable property include the property that was sold prior to the settlement?
Response
If a capital property is disposed of prior to settlement of a debt involving forgiveness of the debt, it is our view that section 80 of the Act does not normally affect the cost base of that property. As provided for in Regulation 5400 and as discussed in paragraph 5 of Interpretation Bulletin IT-293R and the Special Release thereto, any adjustment to cost base required under section 80 of the Act is made at the time during the axation year when the debt is settled.
If at that time the taxpayer does not own any capital property, in our view as a general rule no adjustment can be made to the cost of such property under section 80 of the Act. However, there may be circumstances where the general anti-avoidance rule may apply to a transaction that is part of a series of transactions involving the transfer of property prior to the settlement of the debt. Examples are found in Information Circular IC 88-2 [Information Circular 88-2] paragraph 23 and in Supplement 1 to IC 88-2, paragraph 6.
Glen Thornley
April 14, 1992
7-921118
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