Words and Phrases - "settle"
Matte v. The King, 2025 TCC 16
The taxpayer, who was employed as an investor advisor by a wealth management firm, had received over $1 million in interest-free loans (evidenced by promissory notes) from predecessors of his employer which, by their terms, were forgivable in the employer’s discretion as to 10% each year, and were required to be repaid as to the balance on termination of his employment. When he resigned, his employer sued him for the balance owing, and a settlement agreement was later reached pursuant to which the loans were discharged on payment of an agreed portion of their remaining balances (with part of such payments made by way of set-off against damages found to be owing by his employer to him.)
Ouimet J found that the difference between the amount so agreed to be paid and the balances owing constituted a taxable benefit to the taxpayer pursuant to ss. 6(15) and 6(1)(a).
In rejecting a submission that, based on Merchant, the “loan” advances to the taxpayer had, in fact, been advances on his salary (which had been received in taxation years that were now statute-barred), Ouimet J stated (at paras. 62-63):
An employee having to meet certain objectives to be granted loans by the employer in addition to the base salary, as in Mr. Matte’s case, is different from a situation where the employee’s only compensation for an entire year’s work takes the form of cheques entered into the accounting records as loans, as in Merchant.
Further, the employee in Merchant did not have to repay the amount from any source available to him.
Before finding (at para. 65) that there was “a lender‑borrower (creditor‑debtor) relationship, in accordance with the terminology used by the parties”, Ouimet J indicated (at para. 60) that the forgivability of the loans had “no impact on the legal effect of the documents”.
Regarding when the s. 6(15) inclusion occurred, he noted (at para. 68) that Richer had stated that “In the context of section 80, the word ‘settle’ connotes a final and legally binding resolution that terminates or reduces the debtor’s obligations”, found that “settle” in s. 6(15} should have the same meaning, and further found that there had been a settlement when the release had been signed.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 12 - Subsection 12(11) - Investment Contract | forgivable advances to employee were loans | 151 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(26) | deeming of taxpayer liability to be an obligation | 82 |
7 October 2022 APFF Roundtable Q. 9, 2022-0942281C6 F - Section 80 - proposals under BIA
Pursuant to a proposal under the Bankruptcy and Insolvency Act, Opco and its creditor agreed to write off $600,000 of its $1 million debt and to revise the terms of repayment of the new balance of $400,000, including providing for payments over four years.
The proposal was signed on September 30, 2022, the Superior Court of Quebec approved it on January 20, 2023, the first payments are made in February 2023 and the last payment is made in December 2026 (with a discharge). When did the forgiveness occur for s. 80 purposes?
CRA stated:
According to paragraph 6 of … IT-293R, a debt or obligation is settled or extinguished when the obligation to pay ceases to exist, and payment, cancellation, set-off, substitution of debtors and release are among the means of settlement. …
Furthermore … Richer indicat[ed] that "in the context of section 80, the word 'settle' connotes a final and legally binding resolution that terminates or reduces the debtor’s obligations” … .
CRA also indicated that the resulting tax applicable to the income under s. 80(13) did not arise until such time of forgiveness, rather than being treated as a provable claim in the proceeding.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(13) | s. 80(13) tax liability does not arise until the forgiveness | 234 |
12 October 2016 Internal T.I. 2016-0637781I7 - Employee loan or debt extinguished or settled
An organization (apparently, a federal Crown corporation or agency) may “write off or remit” an employee debt based on employee financial hardship or bankruptcy, or as a result of collection of the debt becoming statute-barred. Will s. 6(15) apply?
Respecting where the debt is remitted under s. 23(2.1) of the Financial Administration Act for reasons of financial hardship, CRA stated:
Since the debt is settled or extinguished because of the organization’s decision and not the operation of another law… the benefit is connected to the employee’s employment…[and] would be included…under paragraph 6(1)(a).
Conversely:
[W]here… the employee debt is extinguished as a result of… bankruptcy proceedings, the benefit is not connected to the employee’s employment and the amount of the debt extinguished is not included in the employee’s income.
After having already stated that an employee debt is settled or extinguished where the “employer writes off or remits” it, CRA addressed the statute-barring situation:
[T]he debt is not settled or extinguished by operation of the [statute-barring]…. Where your organization writes off a debt because it is not legally enforceable… the benefit is connected to the employee’s employment. …[T]he amount of the debt written off would be included in the employee’s employment income under paragraph 6(1)(a).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(2) - Paragraph 80(2)(a) | writing-off debt was its settlement | 36 |
Wigmar Holdings Ltd. v. R., 97 DTC 5203, [1997] 2 CTC 263 (FCA)
The predecessor of the taxpayer ("Diversified Holdings") purchased, in an arm's length transaction, all the shares of another BC company ("860"). Prior to the amalgamation of Diversified Holdings and 860 to continue as the taxpayer, a corporation wholly owned by the taxpayer's individual shareholder ("173235") purchased mortgage indebtedness of 860 owing to Central Trust Company as part of transactions that resulted in the encumbered land being transferred by 860 to Central Trust Company and the mortgage being discharged.
Although agreeing (at p. 5205) "that for all practical purposes the debt no longer exists", Strayer J.A. indicated (at p. 5206) "that for a debt to be settled or extinguished within the meaning of subsection 80(1) there must be a legally binding termination in form and that does not exist in the present case".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) - Paragraph 111(5)(a) | parking-lot (aka development) business of lossco continued after amalgamation with real estate developer notwithstanding two months between sale of parking lot and amalgamation | 148 |
Carma Developers Ltd. v. The Queen, 96 DTC 1798, [1996] 3 CTC 2029 (TCC), briefly aff'd 96 DTC 6569 (FCA)
Under a plan that was approved by the requisite majority of creditors in accordance with the companies' Creditors Arrangement Act, various classes of unsecured or undersecured creditors of the taxpayer ("CDL") transferred indebtedness of the taxpayer in exchange for shares of the taxpayer's parent corporation ("CL").
Bowman TCJ. found that the debts were not extinguished by novation notwithstanding that the creditors acknowledged to CDL that no further consideration was owed to them in respect of the assigned indebtedness, and stated (at p. 1802):
"A novation involves the creation of a new contractual relationship, generally where a debtor is released from its obligation to an obligee with the consent of the obligee and the assumption of the obligation by a third party so that a new obligation arises between the obligee and the third party. Here there is no new contract. The same debt of CDL continues to exist."
He also found that the debts had not been settled, and stated (at p. 1802):
"'Settle' connotes a final and legal resolution of a taxpayer's obligation whereby that obligation is reduced or brought to an end."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii) | 157 |
Richer v. The Queen, 2009 DTC 1413, 2009 TCC 394
A forgiven amount arose in respect of the indebtedness of the taxpayer for unpaid contribution amounts to a partnership at the time that he entered into an agreement settling the claim of the general partner against him for those amounts, rather than at the time he paid the amount owing by him pursuant to the Settlement Agreement. The amount of the forgiven amount was not simply the difference between the amount owing by him for unpaid contributions and the amount paid by him, but rather was reduced further by the value of the rights in the form of potential claims he had against the general partner that he gave up by entering into the Settlement Agreement.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) | 108 | |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(5) | 85 |