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(ii) was issued by the debtor for an
amount,
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equal to the portion of the amount of such
interest that was deductible or would, but
for subsection 18(2) or (3.1) or section 21,
have been deductible in computing the
debtor's income for a taxation year;
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(c) subsections (3) to (5) and (7) to (13)
apply in numerical order to the forgiven
amount in respect of a commercial
obligation;
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(d) the applicable fraction of the unapplied
portion of a forgiven amount at any time in
respect of an obligation issued by a debtor
is
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(i) in respect of a loss for a taxation year
that ends after 1989, 3/4,
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(ii) in respect of a loss for a taxation year
that ended before 1988, 1/2, and
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(iii) in respect of a loss for any other
taxation year, the fraction required to be
used under section 38 for that year;
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(e) where an applicable fraction (as
determined under paragraph (d)) of the
unapplied portion of a forgiven amount is
applied under subsection (4) to reduce at
any time a loss for a taxation year, the
portion of the forgiven amount so applied
shall, except for the purpose of reducing the
loss, be deemed to be the quotient obtained
when the amount of the reduction is divided
by the applicable fraction;
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(f) where 3/4 of the unapplied portion of a
forgiven amount is applied under
subsection (7) to reduce cumulative eligible
capital, except for the purpose of reducing
the cumulative eligible capital, the portion
of the forgiven amount so applied shall be
deemed to be 4/3 of the amount of the
reduction;
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(g) the amount paid in satisfaction of a debt
issued by a corporation and payable to a
person shall
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(i) where any part of the consideration
given to the person for the settlement of
the debt consists of a share (other than an
excluded security) issued by the
corporation to the person, be deemed to
be equal to the total of
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(A) the fair market value of the share
at the time it was issued, and
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(B) the amount, if any, that can
reasonably be considered to be the
increase, as a consequence of the
settlement of the debt, in the fair
market value of other shares of the
capital stock of the corporation owned
by the person, and
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(ii) in any other case, be deemed to
include the amount described in clause
(i)(B);
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(h) where any part of the consideration
given by a debtor to another person for the
settlement at any time of a particular
commercial debt obligation issued by the
debtor and payable to the other person
consists of a new commercial debt
obligation issued by the debtor to the other
person
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(i) an amount equal to the principal
amount of the new obligation shall be
deemed to be paid by the debtor at that
time, because of the issue of the new
obligation, in satisfaction of the principal
amount of the particular obligation, and
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(ii) the new obligation shall be deemed to
have been issued for an amount equal to
the amount, if any, by which
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(A) the principal amount of the new
obligation
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(B) the amount, if any, by which the
principal amount of the new obligation
exceeds the amount for which the
particular obligation was issued;
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(i) where 2 or more commercial obligations
issued by a debtor are settled at the same
time, those obligations shall be treated as if
they were settled at different times in the
order designated by the debtor in a
prescribed form filed with the debtor's
return of income under this Part for the
debtor's taxation year that includes that
time or, if the debtor does not so designate
any such order, in the order designated by
the Minister;
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(j) for the purpose of determining, at any
time, whether 2 persons are related to each
other or whether any person is controlled by
any other person, it shall be assumed that
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(i) each partnership and each trust is a
corporation having a capital stock of a
single class of voting shares divided into
100 issued shares,
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(ii) each member of a partnership and
each beneficiary under a trust owned at
that time the number of issued shares of
that class that is equal to the proportion of
100 that
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(A) the fair market value at that time of
the member's interest in the
partnership or the beneficiary's
interest in the trust, as the case may be
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(B) the fair market value at that time of
all members' interests in the
partnership or all beneficiaries'
interests in the trust, as the case may
be, and
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(iii) where a beneficiary's share of the
income or capital of a trust depends on
the exercise by any person of, or the
failure by any person to exercise, any
discretionary power, the fair market
value at any time of the beneficiary's
interest in the trust is equal to
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(A) where the beneficiary is not
entitled to receive or otherwise obtain
the use of any of the income or capital
of the trust before the death after that
time of one or more other beneficiaries
under the trust, nil, and
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(B) in any other case, the total fair
market value at that time of all
beneficiaries' interests under the trust;
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(k) where an obligation is denominated in a
currency (other than Canadian currency),
the forgiven amount at any time in respect
of the obligation shall be determined with
reference to the relative value of that
currency and Canadian currency at the time
the obligation was issued;
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(l) where an amount is paid in satisfaction
of the principal amount of a particular
commercial obligation issued by a debtor
and, as a consequence of the payment, the
debtor is legally obliged to pay that amount
to another person, the obligation to pay that
amount to the other person shall be deemed
to be a commercial obligation that was
issued by the debtor at the same time and in
the same circumstances as the particular
obligation;
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(m) for greater certainty, the amount that
can be applied under this section to reduce
another amount may not exceed that other
amount;
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(n) except for the purposes of this
paragraph, where
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(i) a commercial debt obligation issued
by a debtor is settled at any time,
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(ii) the debtor is at that time a member of
a partnership, and
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(iii) the obligation was, under the
agreement governing the obligation,
treated immediately before that time as a
debt owed by the partnership,
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the obligation shall be considered to have
been issued by the partnership and not by
the debtor;
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(o) notwithstanding paragraph (n), where a
commercial debt obligation for which a
particular person is jointly liable with one
or more other persons is settled at any time
in respect of the particular person but not in
respect of all of the other persons, the
portion of the obligation that can
reasonably be considered to be the
particular person's share of the obligation
shall be considered to have been issued by
the particular person and settled at that time
and not at any subsequent time;
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(p) a commercial debt obligation issued by
an individual that is outstanding at the time
of the individual's death and settled at a
subsequent time shall, if the estate of the
individual was liable for the obligation
immediately before the subsequent time, be
deemed to have been issued by the estate at
the same time and in the same
circumstances as the obligation was issued
by the individual; and
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(q) where a commercial debt obligation
issued by an individual would, but for this
paragraph, be settled at any time in the
period ending 6 months after the death of an
individual (or within such longer period as
is acceptable to the Minister and the estate
of the individual) and the estate of the
individual was liable immediately before
that time for the obligation
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(i) the obligation shall be deemed to have
been settled at the beginning of the day
on which the individual died and not at
that time,
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(ii) any amount paid at that time by the
estate in satisfaction of the principal
amount of the obligation shall be deemed
to have been paid at the beginning of the
day on which the individual died,
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(iii) any amount given by the estate at or
before that time to another person as
consideration for assumption by the other
person of the obligation shall be deemed
to have been given at the beginning of the
day on which the individual died, and
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(iv) paragraph (b) shall not apply in
respect of the settlement to interest that
accrues within that period,
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except that this paragraph does not apply in
circumstances in which any amount is
because of the settlement included under
paragraph 6(1)(a) or subsection 15(1) in
computing the income of any person or in
which section 79 applies in respect of the
obligation.
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| Reductions of
non-capital
losses
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(3) Where a commercial obligation issued
by a debtor is settled at any time, the forgiven
amount at that time in respect of the obligation
shall be applied to reduce at that time, in the
following order,
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(a) the debtor's non-capital loss for each
taxation year that ended before that time to
the extent that the amount so applied
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(i) does not exceed the amount (in
subsection (4) referred to as the debtor's
``ordinary non-capital loss at that time for
the year'') that would be the relevant loss
balance at that time for the obligation and
in respect of the debtor's non-capital loss
for the year if the description of E in the
definition ``non-capital loss'' in
subsection 111(8) were read without
reference to the expression ``the
taxpayer's allowable business
investment loss for the year'', and
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(ii) does not, because of this subsection,
reduce the debtor's non-capital loss for a
preceding taxation year;
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(b) the debtor's farm loss for each taxation
year that ended before that time, to the
extent that the amount so applied
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(i) does not exceed the amount that is the
relevant loss balance at that time for the
obligation and in respect of the debtor's
farm loss for the year, and
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(ii) does not, because of this subsection,
reduce the debtor's farm loss for a
preceding taxation year; and
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(c) the debtor's restricted farm loss for each
taxation year that ended before that time, to
the extent that the amount so applied
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(i) does not exceed the amount that is the
relevant loss balance at that time for the
obligation and in respect of the debtor's
restricted farm loss for the year, and
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(ii) does not, because of this subsection,
reduce the debtor's restricted farm loss
for a preceding taxation year.
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| Reductions of
capital losses
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(4) Where a commercial obligation issued
by a debtor is settled at any time, the
applicable fraction of the remaining unapplied
portion of a forgiven amount at that time in
respect of the obligation shall be applied to
reduce at that time, in the following order,
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(a) the debtor's non-capital loss for each
taxation year that ended before that time to
the extent that the amount so applied
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(i) does not exceed the amount, if any, by
which
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(A) the relevant loss balance at that
time for the obligation and in respect
of the debtor's non-capital loss for the
year
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(B) the debtor's ordinary non-capital
loss (within the meaning assigned by
subparagraph (3)(a)(i)) at that time for
the year, and
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(ii) does not, because of this subsection,
reduce the debtor's non-capital loss for a
preceding taxation year; and
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(b) the debtor's net capital loss for each
taxation year that ended before that time, to
the extent that the amount so applied
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(i) does not exceed the relevant loss
balance at that time for the obligation and
in respect of the debtor's net capital loss
for the year, and
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(ii) does not, because of this subsection,
reduce the debtor's net capital loss for a
preceding taxation year.
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| Reductions
with respect to
depreciable
property
|
(5) Where a commercial obligation issued
by a debtor is settled at any time, the
remaining unapplied portion of the forgiven
amount at that time in respect of the obligation
shall be applied, in such manner as is
designated by the debtor in a prescribed form
filed with the debtor's return of income under
this Part for the taxation year that includes that
time, to reduce immediately after that time the
following amounts:
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(a) the capital cost to the debtor of a
depreciable property that is owned by the
debtor immediately after that time; and
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(b) the undepreciated capital cost to the
debtor of depreciable property of a
prescribed class immediately after that
time.
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| Restriction
with respect to
depreciable
property
|
(6) Where a commercial obligation issued
by a debtor is settled at any time,
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(a) an amount may be applied under
subsection (5) to reduce, immediately after
that time, the capital cost to the debtor of a
depreciable property of a prescribed class
only to the extent that
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(i) the undepreciated capital cost to the
debtor of depreciable property of that
class at that time
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(ii) the total of all other reductions
immediately after that time to that
undepreciated capital cost; and
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(b) an amount may be applied under
subsection (5) to reduce, immediately after
that time, the capital cost to the debtor of a
depreciable property (other than a
depreciable property of a prescribed class)
only to the extent that
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(i) the capital cost to the debtor of the
property at that time
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(ii) the amount that was allowed to the
debtor before that time under Part XVII
of the Income Tax Regulations in respect
of the property.
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| Reductions of
cumulative
eligible
capital
|
(7) Where a commercial obligation issued
by a debtor is settled at any time, 3/4 of the
remaining unapplied portion of the forgiven
amount at that time in respect of the obligation
shall be applied (to the extent designated in a
prescribed form filed with the debtor's return
of income under this Part for the taxation year
that includes that time) to reduce immediately
after that time the cumulative eligible capital
of the debtor in respect of each business of the
debtor (or, where the debtor is at that time
non-resident, in respect of each business
carried on in Canada by the debtor).
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| Reductions of
resource
expenditures
|
(8) Where a commercial obligation issued
by a debtor is settled at any time, the
remaining unapplied portion of the forgiven
amount at that time in respect of the obligation
shall be applied (to the extent designated in a
prescribed form filed with the debtor's return
of income under this Part for the taxation year
that includes that time) to reduce immediately
after that time the following amounts:
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(a) where the debtor is a corporation
resident in Canada throughout that year,
each particular amount that would be
determined in respect of the debtor under
paragraph 66.7(2)(a), (3)(a), (4)(a) or (5)(a)
if paragraphs 66.7(4)(a) and (5)(a) were
read without reference to the expressions
``30% of'' and ``10% of'', respectively, as
a consequence of the acquisition of control
of the debtor by a person or group of
persons, the debtor ceasing to be exempt
from tax under this Part on its taxable
income or the acquisition of properties by
the debtor by way of an amalgamation or
merger, where the amount so applied does
not exceed the successor pool immediately
after that time for the obligation and in
respect of the particular amount;
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(b) the cumulative Canadian exploration
expense (within the meaning assigned by
subsection 66.1(6)) of the debtor;
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(c) the cumulative Canadian development
expense (within the meaning assigned by
subsection 66.2(5)) of the debtor;
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(d) the cumulative Canadian oil and gas
property expense (within the meaning
assigned by subsection 66.4(5)) of the
debtor; and
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(e) the total determined under paragraph
66(4)(a) in respect of the debtor, where
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(i) the debtor is resident in Canada
throughout that year, and
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(ii) the amount so applied does not
exceed such portion of the total of the
debtor's foreign exploration and
development expenses (within the
meaning assigned by subsection 66(15))
as were incurred by the debtor before that
time and would be deductible under
subsection 66(4) in computing the
debtor's income for that year if the debtor
had sufficient income described in
subparagraph 66(4)(b)(ii) and if that year
ended at that time.
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| Reductions of
adjusted cost
bases of
capital
properties
|
(9) Where a commercial obligation issued
by a debtor is settled at any time and amounts
have been designated under subsections (5),
(7) and (8) to the maximum extent permitted
in respect of the settlement, subject to
subsection (18)
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