| 24(1) | 5-900730 |
| Sean Finn | |
| (613) 957-2746 | |
| Attention: 19(1) | EACC9399 |
July 24, 1990
Dear Sirs:
Re: Subsection 80(1) of the Income Tax Act
This is in reply to your letter dated May 8, 1990 in which you requested our opinion on the interpretation to be given to the words "settled or extinguished " in subsection 80(1) of the Income Tax Act (the "Act").
As the situation described in your letter appears to involve an actual situation with identifiable taxpayers, we are unable to comment on it specifically except in the context of an advance ruling request. However, we offer the following general comments which may be of assistance to you.
For the purposes of subsection 80(1) of the Income Tax Act, the words "settled or extinguished" are not defined. The determination as to whether a debt or other obligation of a taxpayer is settled or extinguished is a question of common law. It is our view that a debt is settled or extinguished when all liability for its payment is terminated , as stated in paragraph 6 of Interpretation Bulletin IT-293R dated July 16, 1979. Examples of means of settlement of a debt include payment, cancellation, set off, release, confusion of debtor and creditor, substitution of debtors and, as stated in your letter, novation.
To the extent that the release of a joint and several debtor from its obligations under a loan agreement does not give rise to a settlement or extinguishment of any of the remaining debtor's obligations under the agreement , it is our opinion that subsection 80(1) of the Act would not be applicable to the obligations of the remaining debtors.
The above comments are not an advance income tax ruling and accordingly are not binding on Revenue Canada, Taxation as stated in paragraph 24 of Information Circular 70-6R.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate