settle

The taxpayer, who was employed as an investor advisor by a wealth management firm, had received over $1 million in interest-free loans (evidenced by promissory notes) from predecessors of his employer which, by their terms, were forgivable in the employer’s discretion as to 10% each year, and were required to be repaid as to the balance on termination of his employment.

A forgiven amount arose in respect of the indebtedness of the taxpayer for unpaid contribution amounts to a partnership at the time that he entered into an agreement settling the claim of the general partner against him for those amounts, rather than at the time he paid the amount owing by him pursuant to the Settlement Agreement.

Under a plan that was approved by the requisite majority of creditors in accordance with the companies' Creditors Arrangement Act, various classes of unsecured or undersecured creditors of the taxpayer ("CDL") transferred indebtedness of the taxpayer in exchange for shares of the taxpayer's parent corporation ("CL").

Bowman TCJ. found that the debts were not extinguished by novation notwithstanding that the creditors acknowledged to CDL that no further consideration was owed to them in respect of the assigned indebtedness, and stated (at p. 1802):

The predecessor of the taxpayer ("Diversified Holdings") purchased, in an arm's length transaction, all the shares of another BC company ("860"). Prior to the amalgamation of Diversified Holdings and 860 to continue as the taxpayer, a corporation wholly owned by the taxpayer's individual shareholder ("173235") purchased mortgage indebtedness of 860 owing to Central Trust Company as part of transactions that resulted in the encumbered land being transferred by 860 to Central Trust Company and the mortgage being discharged.