In Year 1 a Plan was approved which entailed a forgiveness of unpaid interest that had accrued in prior years. However, the Plan’s implementation did not occur until Year 2, when the stipulated conditions precedent were satisfied. Rather than s. 80 applying to the forgiven interest in Year 2, its amount was in CRA’s view included in the debtor’s income in Year 1 under s. 143.4(4). CRA found that:
[T]he Taxpayer’s right to reduce the Interest Debt … falls within the definition of a “right to reduce” in subsection 143.4(1) because it is reasonable to conclude, having regard to all the circumstances, that the right will become exercisable [i.e., that the conditions precedent would be thereafter satisfied].
Further, even if the Interest Debt is settled in a subsequent year, there should be no double taxation [given] (a)(i) of the definition of “excluded obligation”… .
CRA did not discuss whether there still would have been an s. 143.4(4) income inclusion, rather than an application of the debt forgiveness rules, if the Plan had been implemented in the same year.