Section 79


Brill v. The Queen, 96 DTC 6572, [1997] 1 CTC 2 (FCA)

In finding that the proceeds of disposition for the sale by the taxpayer, following its default to the mortgagee, of its property pursuant to a "Rice Order" of the Alberta Court of Queens Bench was the court-determined sale price of $49,000, Linden J.A. stated (at p. 6575) that determining the proceeds" pursuant to s. 79(c) rather than s. 13(21)(d)(i):

"would not be consistent with the commercial reality of the situation. Normally, the Income Tax Act taxes someone on the basis of what has actually been received, not on the basis of some theoretical formula. The situations meant to be covered by paragraph 79(c) are acquisitions by the lenders in a context where no fixed price is paid, and where it might taken some time to ascertain the true value of what has been disposed of."

Farn v. The Queen, 95 DTC 5426, [1996] 1 CTC 19 (FCTD)

Pinard J. found that in the pre-1995 version of s. 79(c) there was no limitation that the principal amount of the taxpayer's claim be included only "to the extent that has been extinguished by virtue of the acquisition or reacquisition", and that this limitation applied only to a debt owing by another person. Accordingly, in this case, the taxpayer realized proceeds of disposition equal to the principal amount owing under a first and second mortgage when a court order permitted the mortgagee to acquire the mortgaged property for a sale price that was less than the amount owing under the first mortgage, even though the taxpayer was not released in respect of his liability under the second mortgage.

Ward v. The Queen, 88 DTC 6212, [1988] 1 CTC 336 (FCTD)

The taxpayers were found to be the effective owners of lands that were foreclosed, notwithstanding that they were not on title as the mortgagors. S.79(c) accordingly applied to determine their proceeds.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership doctors were property owners notwithstanding holding of title by trustees 49
Tax Topics - Income Tax Act - Section 18 - Subsection 18(2) 51
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business adventure is not the carrying on of a business 46
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(g) 34

See Also

Waltz v. The Queen, 2001 DTC 462 (TCC)

The proceeds of disposition to the taxpayer (the current debtor) with respect to the foreclosure of a U.S.-dollar mortgage loan were determined by reference to the exchange rate at the time of that extinguishing rather than the exchange rate at the time the debt was assumed by the taxpayer, as argued by Revenue Canada. This approach was more normal and logical given that the proceeds of disposition would have been determined on the basis of the current exchange rate if the property had been voluntarily disposed of in satisfaction of the debt, and given that the proceeds of disposition arose at the latter time. Furthermore, in the absence of any evidence of novation, it was not appropriate for Revenue Canada to assume that the debt had been created at the time of its assumption rather than original issuance.

Administrative Policy

8 December 1997 External T.I. 9721155 - JUDICIAL SALE AND FORECLOSURE

"The Department accepts that section 79 of the Act does not apply to either the mortgagor or the mortgagee where the judicial order specifies a sale price. However, in our view, section 79 may apply where the judicial sale was a planned acquisition of the property by the mortgagor and the mortgagor is the only bidder at the judicial sale."

14 January 1993 T.I. 922579 (November 1993 Access Letter, p. 500, ¶C76-076)

Where a corporation has retained title to land inventory until the purchaser pays the balance of the purchase price, and the purchaser then gives up its rights under the agreement so that the vendor can dispose of the land at fair market value to third parties but requests that the vendor share the proceeds from the land with it, s. 79 will not apply.

11 January 1993 T.I. 923216 (November 1993 Access Letter, p. 499, ¶C76-075)

Where an acceleration clause in a debt obligation of a purchaser causes the obligation to become due in the same year as sale, no reserve will be allowed under s. 40(1)(a)(iii) to the creditor in the year of sale. Where the sale occurred in an earlier year and the vendor did not reacquire the property until a subsequent year, the vendor will include in the current year's income any amount claimed as a reserve in the previous year and s. 79(e) will have no effect.

25 November 1992 T.I. 921512 (September 1993 Access Letter, p. 415, ¶C76-073)

S.79(c) deals only with the principal amount of debt. S.80(1) deals separately with accrued simple interest but does not apply to accrued compound interest.

18 July 1991 T.I. (Tax Window, No. 7, p. 4, ¶1362)

Where a vendor sells property for proceeds payable in year 2, and following default by the purchaser in year 2 the vendor is granted a final order of foreclosure in year 3 and reacquires the property, the vendor will be taxed on the entire gain even though none of the proceeds were paid.

17 April 1991 T.I. (Tax Window, No. 2, p. 24, ¶1206)

S.79 applies where a mortgagor executes a quit claim and release by virtue of which his interest in a property is transferred to the mortgagee in satisfaction of all claims of the mortgagee.

11 June 1990 T.I. (November 1990 Access Letter, ¶1524)

Where a parent corporation sells depreciable property to a wholly-owned subsidiary under a sales agreement, the depreciable property is transferred back to the parent on default by the subsidiary at a time that the property has a UCC of $100,000 and a fair market value of $50,000, and the debt owing by the subsidiary of $80,000 to the parent is extinguished by a quit claim deed, the more specific provisions of s. 85(5.1) will override the more general provisions of s. 79.

88 C.R. - Q.56

The principal amount of a guarantor's claim for purposes of s. 79(c) is the amount owing by that taxpayer under the terms of the guarantee.

ATR-7 (22 Jan. 86)

Where X Ltd. sold the assets of a business to Y Ltd. for consideration which included the sum of $750,000 payable in quarterly instalments of $25,000, and then reacquires those assets after the default of Y Ltd., the cost of X Ltd.'s claim is the amount of the unpaid instalments due and payable in respect of the sale of the assets, but does not include any portion of an unrelated trade receivable owing by Y Ltd. to X Ltd.

86 C.R. - Q.58

The word "it" in s. 79(c) refers to the principal amount of any debt that has been owing by the other person.

86 C.R. - Q.59

The loss provided for in s. 79(d) will be of the same character as the property disposed of as a consequence of the foreclosure.

84 C.R. - Q.28

S.79(f) does not allow the inclusion of legal fees incurred by the creditor in acquiring the property, in the cost to him of the property.

IT-505 "Mortgage Foreclosures and Conditional Sales Repossessions"

General discussion.


Laushway, "Section 79: A Hazard Zone", Canadian Current Tax, March 1991, p. C49.

Goodwin, "Tax Consequences of Repossessions, Foreclosures, Forced Sales and Defaults", 1983 Corporate Management Tax Conference, p. 111.

Subsection 79(2) - Surrender of property


Hallbauer v. The Queen, 98 DTC 6275, [1998] 3 CTC 115 (FCA)

The transfer by the taxpayer to his sister and former wife of his interest in two buildings in consideration for a reduction in the amount he owed to them was found to be a disposition whose proceeds of disposition were determined in accordance with s. 54(h)(i) (i.e., the "sale price of property that has been sold"), rather than by para. (c) of s. 79, as it then read.

Words and Phrases
in consequence of

See Also

Dieni v. The Queen, 2001 DTC 290 (TCC)

The transfer of Quebec real estate by the taxpayer to a lender pursuant to a Deed of Giving In Payment which was executed following an action by the lender that McArthur T.C.J. described (at p. 291) as "equivalent to that of mortgage foreclosure in most other provinces" was governed by s. 79 rather than s. 80. McArthur T.C.J. noted (at p. 294) that the lender and the taxpayer did not fix or vary their existing rights and obligations with respect to the property, and the lender took the property in accordance with the strict terms of its Deed of Loan.


Janette Pantry, Carrie Smit, "Tax Considerations in Restructuring under the Companies’ Creditors Arrangement Act", draft 2020 CTF Annual Conference paper

Description of credit bid (pp. 11-12)

  • Under a credit bid, which allows an existing secured creditor to bid up to the full face amount of their secured debt claim as currency for the acquisition of the debtor’s assets, the secured debt may be transferred by the secured creditors to a newly-established “CreditBidCo” in consideration for equity, so that CreditBidCo then acquires the debtor’s assets (and assumes some operating liabilities), with the full amount of its secured debt claim being extinguished.

Barter exchange characterization if s. 79 inapplicable (pp. 12-13)

  • In the absence of s. 79, the better view is that CreditBidCo is paying for the assets by agreeing to dispose of its secured debt having a value equaling to the net fair market value (“FMV”) of the underlying collateral (and that such amount constitutes the sale price to the debtor, being the secured creditors’ agreement to settle their debt claims for a value equaling the same net FMV), so that the proceeds of disposition to the debtor, the tax cost of the assets to CreditBidCo, and the repayment of the secured debt for s. 80 purposes reflects the assets’ current FMV.

Whether s. 79 applies (pp. 13-16)

  • Where s. 79 applies on a credit bid, the debtor would likely have proceeds of disposition exceeding the assets’ FMV and no forgiven amount, whereas the creditor would likely have tax cost in the assets exceeding their FMV.
  • S. 79 may not apply based on the narrow meaning of "in consequence of" (see, e.g., Hallbauer) and the (Brill-based) proposition that “where property is acquired by a creditor under an agreement with the debtor for a fixed price, section 79 should not be applicable.”
  • Greater certainty on s. 79 not applying may be achieved with a three-party arrangement under which CreditBidCo would directly acquire the debtor’s assets, and in consideration it would issue its shares to the secured creditors who would agree to the extinguishment of their debt claims against the debtor.

Accessing debtor’s losses (p. 16)

  • CreditBidCo might then acquire the debtor’s shares and wind it up so as to access its tax attributes (see 2017-0711071R3 and 2005-0140981C6).
Words and Phrases
in consequence of