In the particular taxation year, a commercial debt obligation that ACO issued in the course of carrying on its business was forgiven. In addition, ACO sustained an allowable capital loss from the disposition of a capital property. Prior to the application of the debt forgiveness rules, ACO had a balance of a non-capital loss realized in a previous year and available for carry forward, a cumulative eligible capital balance and adjusted cost base of shares of related corporations.
The TSO proposed to designate pursuant to s. 80(16) the maximum amounts permitted under ss. 80(7) and (11), so that the forgiven amount would be applied first against the balance of the non-capital loss, second as to reduce ¾ of the cumulative eligible capital and third, to reduce the adjusted cost base of the related corporation shares under s. 80(11), resulting in an amount being deemed to be a capital gain from the disposition of capital property under s. 80(12). This resulted in an amount to be added in computing ACO’s business income under s. 80(13), and with a deduction under s. 61.3(1).
The Directorate indicated that it agreed with the TSO’s interpretations of ss. 80(16) and (12), stating that “the Minister may under subsection 80(16) designate amounts to the maximum extent permitted under subsections 80(5) to 80(11) as you have proposed.”