29 May 1991 Income Tax Severed Letter

911001
                                                  J.A. Szeszycki
                                                  (613) 957-2103

          24(1)19(1)

May 29, 1991

Dear Sirs:

Re: Forgiven Employee Loans

This is in reply to your letter of April 9, 1991 in which you referred to our previous correspondence on the subject dated March 28, 1991.

To the fact situation previously presented you have added the point of fact that some of the individuals are no longer employees at the time their loans are forgiven and you have asked us to assume that the benefit resulting from the forgiveness of the loan is received by the individual in his/her capacity as an employee. In light of this additional fact you have asked whether the forgiven loan in respect of an ex-employee can be deducted by the employer.

As indicated in our previous response, whether the benefit related to the forgiveness of the loan is received by the individual in his/her capacity as an employee or as a shareholder is a question of fact and such a determination cannot be made without an examination of all the circumstances and documentation surrounding the transaction. However, based on the assumption that the benefit is received by virtue of their employment and is reported as such, the amount of the forgiveness would be deductible to the employer as an expense under subsection 9(1) of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

000015