Income Tax Act

Marginal note:Definitions

• 79 (1) In this section,

  creditor

  creditor of a particular person includes a person to whom the particular person is obligated to pay an amount under a mortgage, hypothecary claim or similar obligation and, where property was sold to the particular person under a conditional sales agreement, the seller of the property (or any assignee with respect to the agreement) is deemed to be a creditor of the particular person in respect of that property; (créancier)

  debt

  debt includes an obligation to pay an amount under a mortgage, hypothecary claim or similar obligation or under a conditional sales agreement; (dette)

  person

  person includes a partnership; (personne)

  property

  property does not include

  • (a) money, or

  • (b) indebtedness owed by or guaranteed by the government of a country, or a province, state, or other political subdivision of that country; (bien)

  specified amount

  specified amount at any time of a debt owed or assumed by a person means

  • (a) the unpaid principal amount of the debt at that time, and

  • (b) unpaid interest accrued to that time on the debt. (montant déterminé)

• Marginal note:Surrender of property

  (2) For the purposes of this section, a property is surrendered at any time by a person to another person where the beneficial ownership of the property is acquired or reacquired at that time from the person by the other person and the acquisition or reacquisition of the property was in consequence of the person’s failure to pay all or part of one or more specified amounts of debts owed by the person to the other person immediately before that time.

• Marginal note:Proceeds of disposition for debtor

  (3) Where a particular property is surrendered at any time by a person (in this subsection referred to as the “debtor”) to a creditor of the debtor, the debtor’s proceeds of disposition of the particular property shall be deemed to be the amount determined by the formula

  (A + B + C + D + E - F) × G/H

  where

  A

  is the total of all specified amounts of debts of the debtor that are in respect of properties surrendered at that time by the debtor to the creditor and that are owing immediately before that time to the creditor;

  B

  is the total of all amounts each of which is a specified amount of a debt that is owed by the debtor immediately before that time to a person (other than the creditor), to the extent that the amount ceases to be owing by the debtor as a consequence of properties being surrendered at that time by the debtor to the creditor;

  C

  is the total of all amounts each of which is a specified amount of a particular debt that is owed by the debtor immediately before that time to a person (other than a specified amount included in the amount determined for A or B as a consequence of properties being surrendered at that time by the debtor to the creditor), where

  • (a) any property surrendered at that time by the debtor to the creditor was security for

    • (i) the particular debt, and

    • (ii) another debt that is owed by the debtor immediately before that time to the creditor, and

  • (b) the other debt is subordinate to the particular debt in respect of that property;

  D

  is

  • (a) where a specified amount of a debt owed by the debtor immediately before that time to a person (other than the creditor) ceases, as a consequence of the surrender at that time of properties by the debtor to the creditor, to be secured by all properties owned by the debtor immediately before that time, the lesser of

    • (i) the amount, if any, by which the total of all such specified amounts exceeds the portion of that total included in any of the amounts determined for B or C as a consequence of properties being surrendered at that time by the debtor to the creditor, and

    • (ii) the amount, if any, by which the total cost amount to the debtor of all properties surrendered at that time by the debtor to the creditor exceeds the total amount that would, but for this description and the description of F, be determined under this subsection as a consequence of the surrender, and

  • (b) in any other case, nil;

  E

  is

  • (a) where the particular property is surrendered at that time by the debtor in circumstances in which paragraph 69(1)(b) would, but for this subsection, apply and the fair market value of all properties surrendered at that time by the debtor to the creditor exceeds the amount that would, but for this description and the description of F, be determined under this subsection as a consequence of the surrender, that excess, and

  • (b) in any other case, nil;

  F

  is the total of all amounts each of which is the lesser of

  • (a) the portion of a particular specified amount of a particular debt included in the amount determined for A, B, C or D in computing the debtor’s proceeds of disposition of the particular property, and

  • (b) the total of

    • (i) all amounts included under paragraph 6(1)(a) or subsection 15(1) in computing the income of any person because the particular debt was settled, or deemed by subsection 80.01(8) to have been settled, at or before the end of the taxation year that includes that time,

    • (ii) all amounts renounced under subsection 66(10), (10.1), (10.2) or (10.3) by the debtor in respect of the particular debt,

    • (iii) all amounts each of which is a forgiven amount (within the meaning assigned by subsection 80(1)) in respect of the debt at a previous time that the particular debt was deemed by subsection 80.01(8) to have been settled,

    • (iv) where the particular debt is an excluded obligation (within the meaning assigned by subsection 80(1)), the particular specified amount, and

    • (v) the lesser of

      • (A) the unpaid interest accrued to that time on the particular debt, and

      • (B) the total of

        • (I) the amount, if any, by which the total of all amounts included because of section 80.4 in computing the debtor’s income for the taxation year that includes that time or for a preceding taxation year in respect of interest on the particular debt exceeds the total of all amounts paid before that time on account of interest on the particular debt, and

        • (II) such portion of that unpaid interest as would, if it were paid, be included in the amount determined under paragraph 28(1)(e) in respect of the debtor;

  G

  is the fair market value at that time of the particular property; and

  H

  is the fair market value at that time of all properties surrendered by the debtor to the creditor at that time.

• Marginal note:Subsequent payment by debtor

  (4) An amount paid at any time by a person as, on account of or in satisfaction of, a specified amount of a debt that can reasonably be considered to have been included in the amount determined for A, C or D in subsection 79(3) in respect of a property surrendered before that time by the person shall be deemed to be a repayment of assistance, at that time in respect of the property, to which

  • (a) subsection 39(13) applies, where the property was capital property (other than depreciable property) of the person immediately before its surrender;

  • (b) paragraph 20(1)(hh.1) applies, where the cost of the property to the person was an eligible capital expenditure at the time the property was acquired;

  • (c) the description of E in the definition cumulative Canadian exploration expense in subsection 66.1(6), the description of D in the definition cumulative Canadian development expense in subsection 66.2(5) or the description of D in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5), as the case may be, applies, where the cost of the property to the person was a Canadian exploration expense, a Canadian development expense or a Canadian oil and gas property expense; or

  • (d) paragraph 20(1)(hh) applies, in any other case.

• Marginal note:Subsequent application with respect to employee or shareholder debt

  (5) Any amount included under paragraph 6(1)(a) or subsection 15(1) in computing a person’s income for a taxation year that can reasonably be considered to have been included in the amount determined for A, C or D in subsection 79(3) as a consequence of properties being surrendered before the year by the person shall be deemed to be a repayment by the person, immediately before the end of the year, of assistance to which subsection 79(4) applies.

• Marginal note:Surrender of property not payment or repayment by debtor

  (6) Where a specified amount of a debt is included in the amount determined at any time for A, B, C or D in subsection 79(3) in respect of a property surrendered at that time by a person to a creditor of the person, for the purpose of computing the person’s income, no amount shall be considered to have been paid or repaid by the person as a consequence of the acquisition or reacquisition of the surrendered property by the creditor.

• Marginal note:Foreign exchange

  (7) Where a debt is denominated in a currency (other than Canadian currency), any amount determined for A, B, C or D in subsection 79(3) in respect of the debt shall be determined with reference to the relative value of that currency and Canadian currency at the time the debt was issued.