Pursuant to a Plan of Compromise and Arrangement under the CCAA (the “Plan”):
- A wholly-owned subsidiary of the taxpayer will be wound-up, with a s. 80.01(4) election being made on a timely basis.
- Interest on “Affected Claims” (including bank loans and notes) that accrued both in the current year and prior years (the “Unpaid Interest”) will be forgiven.
- The Taxpayer will issue “Claim Settlement Shares” to Affected Creditors in satisfaction of their Affected Claims (except that “Cash Election Creditors” will receive cash in lieu of such shares – apparently funded out of common share subscriptions by the Plan Sponsor and investors), thereby resulting in a portion of the outstanding principal of the Affected Claims being forgiven
The resulting forgiven amount is estimated to be less than the taxpayer’s tax attributes.
Rulings
Re application of s. 80 in the year of settlement and that, on the basis of s. 80 applying, ss. 143.4(2) and (4) will not apply to any right to reduce the Unpaid Interest that might arise in that taxation year. In its reasons, CRA stated:
According to the rules that govern the application of a "forgiven amount," such as subsection 80(3), if a commercial debt obligation is forgiven at any time, the forgiven amount is applied to reduce the particular balance "at that time." On the other hand, under subsection 143.4(4), the "subsequent contingent amount" is deemed to be an amount received under subparagraph 12(1)(x)(i) at that time, but under section 12, an amount is included in income "for a taxation year," which is only accounted for at the end of a taxation year. Further, although there is no carve out under section 143.4 for forgiven amounts, section 143.4 would not apply by virtue of the prohibition against double taxation under subsection 248(28) and the rule that a more specific provision takes precedence over a more general provision.