7 December 1991 Income Tax Severed Letter - Application of section 79 from creditor's perspective

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.

Dear Sirs:

Re: Section 79 of the Income Tax Act (the "Act")

This is in reply to your letter of September 30, 1991 wherein you request our views concerning various questions respecting the application, from the prospective of the creditor, of the provisions of section 79 of the Act.

Question 1

We agree that the application of section 79 of the Act is not restricted to "mortgage foreclosures" and "conditional sales repossessions". Please refer to paragraph 1 of Interpretation Bulletin IT-505.

Question 2

The characterization as to whether the acquired or reacquired property would be capital property or inventory of the creditor is a question of fact to be determined on the basis of the specific details and facts of each case.

Question 3

Where the property is acquired or reacquired in consequence of the failure of a mortgagor or other debtor to pay all or any part of an amount owned to the creditor, any loss on a subsequent resale of the property would not ordinarily be denied on the basis of the "reasonable expectation of profit" criteria.

Question 4

Please refer to our comments in question 2 above. Where, on the basis of the facts and details, the property is considered to be inventory the provisions in section 10 of the Act respecting inventory valuations would apply.

Question 5

Please refer to our comments in question 2 and 4 above.

Questions 6, 7, 8 & 9

Please refer to the comments in paragraph 12 of IT-505.

Questions 10 & 11

Ordinarily, subsection 69(1) of the Act would not apply in a situation where the provisions of section 79 apply.

Question 12

Interpretation Bulletin IT-505 discusses the creditor's and debtor's position where section 79 of the Act applies.

Question 13

The determination as to whether the "GAAR" rules in section 245 of the Act would apply in respect of a specific transaction(s) can only be determined when all the facts and details of the particular case have been established and reviewed.

We trust our comments will be of assistance to you.