Income Tax Act

Marginal note:Definitions

• 79.1 (1) In this section,

  creditor

  créancier

  creditor has the meaning assigned by subsection 79(1); (créancier)

  debt

  dette

  debt has the meaning assigned by subsection 79(1); (dette)

  person

  personne

  person has the meaning assigned by subsection 79(1); (personne)

  property

  bien

  property has the meaning assigned by subsection 79(1); (bien)

  specified amount

  montant déterminé

  specified amount has the meaning assigned by subsection 79(1); (montant déterminé)

  specified cost

  coût déterminé

  specified cost to a person of a debt owing to the person means

  • (a) where the debt is capital property of the person, the adjusted cost base to the person of the debt, and

  • (b) in any other case, the amount, if any, by which

    • (i) the cost amount to the person of the debt

    exceeds

    • (ii) such portion of that cost amount as would be deductible in computing the person’s income (otherwise than in respect of the principal amount of the debt) if the debt were established by the person to have become a bad debt or to have become uncollectable. (coût déterminé)

• Marginal note:Seizure of property

  (2) Subject to subsection (2.1) and for the purpose of this section, a property is seized at any time by a person in respect of a debt where

  • (a) the beneficial ownership of the property is acquired or reacquired at that time by the person; and

  • (b) the acquisition or reacquisition of the property is in consequence of another person’s failure to pay to the person all or part of the specified amount of the debt.

• Marginal note:Exception

  (2.1) For the purpose of this section, foreign resource property is deemed not to be seized at any time from

  • (a) an individual or a corporation, if the individual or corporation is non-resident at that time; or

  • (b) a partnership (other than a partnership each member of which is resident in Canada at that time).

• Marginal note:Creditor’s capital gains reserves

  (3) Where a property is seized at any time in a particular taxation year by a creditor in respect of a debt, for the purpose of computing the income of the creditor for the particular year, the amount claimed by the creditor under subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) in computing the creditor’s gain for the preceding taxation year from any disposition before the particular year of the property shall be deemed to be the amount, if any, by which the amount so claimed exceeds the total of all amounts each of which is an amount determined under paragraph 79.1(6)(a) or 79.1(6)(b) in respect of the seizure.

• Marginal note:Creditor’s inventory reserves

  (4) Where a property is seized at any time in a particular taxation year by a creditor in respect of a debt, for the purpose of computing the income of the creditor for the particular year, the amount deducted under paragraph 20(1)(n) in computing the income of the creditor for the preceding taxation year in respect of any disposition of the property before the particular year shall be deemed to be the amount, if any, by which the amount so deducted exceeds the total of all amounts each of which is an amount determined under paragraph 79.1(6)(a) or 79.1(6)(b) in respect of the seizure.

• Marginal note:Adjustment where disposition and reacquisition of capital property in same year

  (5) Where a property is seized at any time in a taxation year by a creditor in respect of one or more debts and the property was capital property of the creditor that was disposed of by the creditor at a previous time in the year, the proceeds of disposition of the property to the creditor at the previous time shall be deemed to be the lesser of the amount of the proceeds (determined without reference to this subsection) and the amount that is the greater of

  • (a) the amount, if any, by which the amount of such proceeds (determined without reference to this subsection) exceeds such portion of the proceeds as is represented by the specified amounts of those debts immediately before that time, and

  • (b) the cost amount to the creditor of the property immediately before the previous time.

• Marginal note:Cost of seized properties for creditor

  (6) Where a particular property is seized at any time in a taxation year by a creditor in respect of one or more debts, the cost to the creditor of the particular property shall be deemed to be the amount, if any, by which the total of

  • (a) that proportion of the total specified costs immediately before that time to the creditor of those debts that

    • (i) the fair market value of the particular property immediately before that time

    is of

    • (ii) the fair market value of all properties immediately before that time that were seized by the creditor at that time in respect of those debts, and

  • (b) all amounts each of which is an outlay or expense made or incurred, or a specified amount at that time of a debt that is assumed, by the creditor at or before that time to protect the creditor’s interest in the particular property, except to the extent the outlay or expense

    • (i) was included in the cost to the creditor of property other than the particular property,

    • (ii) was included before that time in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts of the creditor, or

    • (iii) was deductible in computing the creditor’s income for the year or a preceding taxation year

  exceeds

  • (c) the amount, if any, claimed or deducted under paragraph 20(1)(n) or subparagraph 40(1)(a)(iii) or 44(1)(e)(iii), as the case may be, in respect of the particular property in computing the creditor’s income or capital gain for the preceding taxation year or the amount by which the proceeds of disposition of the creditor of the particular property are reduced because of subsection 79.1(5) in respect of a disposition of the particular property by the creditor occurring before that time and in the year.

• Marginal note:Treatment of debt

  (7) Where a property is seized at any time in a taxation year by a creditor in respect of a particular debt,

  • (a) the creditor shall be deemed to have disposed of the particular debt at that time;

  • (b) the amount received on account of the particular debt as a consequence of the seizure shall be deemed

    • (i) to be received at that time, and

    • (ii) to be equal to

      • (A) where the particular debt is capital property, the adjusted cost base to the creditor of the particular debt, and

      • (B) in any other case, the cost amount to the creditor of the particular debt;

  • (c) where any portion of the particular debt is outstanding immediately after that time, the creditor shall be deemed to have reacquired that portion immediately after that time at a cost equal to

    • (i) where the particular debt is capital property, nil, and

    • (ii) in any other case, the amount, if any, by which

      • (A) the cost amount to the creditor of the particular debt

      exceeds

      • (B) the specified cost to the creditor of the particular debt; and

  • (d) where no portion of the particular debt is outstanding immediately after that time and the particular debt is not capital property, the creditor may deduct as a bad debt in computing the creditor’s income for the year the amount described in subparagraph 79.1(7)(c)(ii) in respect of the seizure.

• Marginal note:Claims for debts

  (8) Where a property is seized at any time in a taxation year by a creditor in respect of a debt, no amount in respect of the debt

  • (a) is deductible in computing the creditor’s income for the year or a subsequent taxation year as a bad, doubtful or impaired debt; or

  • (b) shall be included after that time in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts of the creditor as a bad, doubtful or impaired debt.