Written on December 19, 2012 – 7:00 am | by Derek de Gannes
These days its not unusual to to see debts referred to in a Will. In some cases, the debt may be forgiven altogether thus leading to a question of whether or not there could be tax relief to the estate.
In a recent technical interpretation, the Canada Revenue Agency took the position that a forgiven debt would generally be considered a disposition to the creditor (estate) and if the debt is determined to be on account of capital, a capital loss may be incurred. This loss may be denied unless the debt had been (i) acquired by the taxpayer for the purpose of gaining or producing taxable income from a business or property or (ii) acquired as consideration for the disposition of capital property in an arm’s length transaction.
More often than not the stop loss rule would generally apply to deem the loss to be nil; however, this is ultimately a question of fact which would depend on the details of the particular debt forgiveness and the terms and conditions expressed in the will itself.
Be sure to consult a pro when dealing with debts in the estate. Thanks for reading.