By Lisa Patrick on
1/2/2012 12:00 AM
Yikes, your company has been forgiven a debt… That could mean you have income and gst to report unless you designate the amount was initially an equipment cost and reduce the asset value.
There are extremely complex rules dealing with situations where taxpayers who have commercial obligations (debt) and that debt is settled for less than the principal amount. If the debt is personal or non-commercial in nature, nothing happens. In these cases, the debt is defined to include debt where the interest is not deductible for income tax purposes. Commercial debt is debt where interest is deductible for income tax. To be deductible, it must have been incurred to earn income from a business or property. However, even in cases where the debt was non-interest bearing, the debt forgiveness rules apply where interest, if paid or payable, would have been tax deductible. Where commercial debt is forgiven, the forgiven amount is subject to certain special tax treatment.
T2154- Application of Designated Forgiven Debt...