| 19(1) | File No. 5-9059 |
| M. Eisner | |
| (613) 957-2138 |
February 2, 1990
Dear Sirs:
This is in reply to your letter of November 6, 1989 concerning whether subsection 80(1) applies to a forgiveness of debt in the following hypothetical situation:
1. The taxpayer, Co.A, is a Canadian-controlled private corporation.
2. In year 1, Co.A declared a bonus payable to certain employees, which was accrued and deducted for income tax purposes.
3. The bonus was not paid within the 180 day period provided under subsection 78(4). In year 2, the company and the employees agreed to rescind the bonus.
With respect to the above situation, subsection 78(4) provides in part that "where an amount in respect of a taxpayer's expense that is salary ... is unpaid on the day that is 180 days after the end of the taxation year in which the expense was incurred, for the purposes of this Act, other than this subsection, the amount shall be deemed not to have been incurred as an expense in the year".
It is our view that subsection 80(1) could not apply to the bonus payable as this debt is deemed by subsection 78(4) to be non-existent. It would follow that subsection 78(4) would be the only provision that would apply to the situation you provided us.
These comments represent our opinion of the law as it applies generally. As indicated in paragraph 24 of Information Circular 70-6R dated December 18, 1978, this opinion is not a ruling and, accordingly, it is not binding on Revenue Canada, Taxation.
We trust you will find the foregoing satisfactory.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch