| 922184 | |
| L. Holloway | |
| (613) 957-2104 |
August 4, 1992
Penticton District OfficeBusiness and General Division
Attention : B. SixsmithChief of Audit
19(1) - Debt Forgiveness & Interest Accrual
This is in reply to a memorandum dated July 15, 1992, from Mr. R. Riesig of your office (copy attached) wherein our opinion was requested on the applicability of subsections 80(1) and 12(9) to the following situation:
Facts
24(1)
24(1)
Specifically you were asking whether subsection 12(9) and Regulation 7000 would apply to accrue interest on the promissory note and whether section 80 would apply to the note since there does not appear to be any intention by 19(1) to collect.
Our Comments
Subsection 12(9) & Regulation 7000 The response to this query is found in the Department's published position in the 1990 Canadian Tax Foundation Round Table, Question 10:
"A non-interest-bearing demand promissory note would be considered a "prescribed debt obligation" for purposes of subsection 12(9) by virtue of regulation 7000(1)(a) of the Income Tax Regulations. Provided that the promissory note is issued as redeemable for its face amount, the calculation in regulation 7000(2)(a) will not result in an amount of accrued interest income."
Application of Section 80 Paragraph 6 of Interpretation Bulletin IT-293R states that:
" For a debt or obligation to be "settled or extinguished" all liability for payment must be terminated. Payment, cancellation, set-off, substitution of debtors and release are examples of some possible means of settlement. A debt or obligation is not settled where a creditor abandons his right to enforce payment or becomes statute-barred from enforcing his right to payment. However, a settlement does occurs where, by statute, the debtor's actual liability to pay is extinguished after a specified period of time has elapsed."
According to the indicators noted above, section 80 cannot be said to apply to the debt between 19(1) the debt does not appear to be settled or extinguished. If the debt is forgiven upon the death of 19(1) section 80 would then be applicable.
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch