Section 76


Nellis v. The Queen, 86 DTC 6377, [1986] 2 CTC 216 (FCTD)

A resolution of a corporation acknowledging its debt to its shareholder was not a document given in satisfaction of the payment of the debt. "[I]t was not the intention of Parliament to force a taxpayer to pay income tax on revenue he never received."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2) 33

Western Union Insurance Co. v. The Queen, 83 DTC 5388, [1983] CTC 363 (FCTD)

Where a bonus on a loan was earned by the lender over the term of the loan, it could not be said with respect to the time at which the loan agreement was entered into that the bonus debt "was then payable".

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt sending of cheque to sender's lawyers 24
Tax Topics - Income Tax Act - Section 9 - Interest Income 89

The Queen v. Immobiliare Canada Ltd., 77 DTC 5332, [1977] CTC 481 (FCTD)

A Canadian subsidiary ("Place Victoria") of a non-resident corporation ("SGI") decided with the consent of SGI to postpone the payment of interest on debentures held by SGI. The subsequent sale by SGI of those debentures to the defendant, which was a second Canadian subsidiary of SGI, did not trigger withholding tax on the payment of the purchase price by the defendant to SGI by virtue of s. 214(4). Addy, J. stated that "the payment by the Defendant cannot be 'in lieu of or in satisfaction of' any part of the accrued interest owed by Place Victoria. The latter still owed every penny of interest."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) sale of bond with accrued interest did not satisfy interest 178
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(b) sale proceeds allocable to expectancy of interest were not interest receipt 198
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) elimination of Part XIII tax was a s. 246(1) benefit 91

Lloyd Estate v. MNR, 63 DTC 1349 (Ex Ct), briefly aff'd 65 DTC 5031 (SCC)

The taxpayer acquired a mortgage at a discount, and later foreclosed on the mortgage and sold the foreclosed mortgage for a purchase price which was secured by a mortgage of the purchaser in favour of the taxpayer. After finding that the taxpayer realized the amount of the discount in the year of foreclosure and sale, Noël J. stated (p. 1358):

"I am also inclined to hold this true on the basis of s. 24(1) of the [pre-1972 Act] ... The security (the mortgage including the discount assumed [sic] by the purchaser) was given here in lieu of the payment which the taxpayer was entitled to upon the foreclosure proceedings, which payment he voluntarily consented to postpone by the acceptance of a new mortgage."

MNR v. Burns, 58 DTC 1028 (Ex Ct), briefly aff'd 59 DTC 1328 (SCC)

Vendor takes-back mortgages received by a builder were not governed by s. 24(1) of the pre-1972 Act because the principal amounts of the second mortgages were not payable in the year in which the sales occurred.

Administrative Policy

16 July 1992 T.I. 921140 (January - February 1993 Access Letter, p. 14, ¶C20-1137)

A cash-basis farmer will have to include the amount of a promissory note, due and payable 30 days after demand, received on the sale of inventory where that security was received in absolute settlement of the debt.

6 March 1990 T.I. (August 1990 Access Letter, ¶1368)

S.76 does not apply in a situation where a corporation sells inventory for a purchase price due in three years' time, then assigns the amount owing to a corporation in exchange for a promissory note due in five years' time.

ATR-6 (22 Jan. 86)

On a restructuring of a corporation in financial difficulty ("Y Ltd.") which owes to X Ltd. a trade receivable which was included in X Ltd.'s income in a previous taxation year, X Ltd. converts the trade receivable into common shares of Y Ltd. Provided that no deduction is claimed pursuant to s. 20(1)(p), no amount will be included in X Ltd.'s income under s. 76(1).

Subsection 76(1) - Security in satisfaction of income debt


MNR v. Burns, 58 DTC 1028 (Ex Ct), briefly aff'd 59 DTC 1328 (SCC)

The taxpayer, when it sold cottages it had constructed, usually accepted second mortgages from the purchasers which it would subsequently sell at a substantial discount from their face amount. In finding that s. 24(1) of the pre-1972 Act had no application to the receipt of the second mortgages, Cameron J. found (at p. 1031) that the section "relates only to cases in which the taxpayer who received the security or other right, or a certificate or other evidence of indebtedness, was, by reason of some pre-existing transaction, entitled to received an interest, dividend or other debt that was then payable and the amount of which would have been included in computing his income if it had been paid" whereas, here, the principal of the second mortgages was payable in future years.

Administrative Policy

16 July 1996 External T.I. 9622405 - POST-DATED CHEQUES

S.76(1) would apply to post-dated cheques received by a cash-basis farmer in payment of grain, with the result that the amount in question would be required to be brought into income at the time the post-dated cheques were received in settlement of the debt then payable.

92 C.R. - Q.41

While s. 76 places cash basis taxpayers on an accrual basis with respect to income debts, its application could also involve accrual basis taxpayers, for example, where a non-resident receives a security and satisfaction of an amount subject to Part XIII tax.