I-3 - Taxation Act

Section 481 Disposition versions

2006-03-01

481. (1)  The following rules apply where a debt in respect of a deductible expense of a taxpayer to a person with whom he was not dealing at arm’s length when the debt was incurred and at the end of the second taxation year following that in which the debt was incurred, is unpaid in whole or in part at the end of such second taxation year:

(a)  the unpaid amount must be included in computing the taxpayer’s income for the third taxation year following that in which the debt was incurred; or

(b)  where the taxpayer and that person file an agreement in prescribed form on or before the taxpayer’s filing-due date for that third year,

i.  the unpaid amount is deemed to have been paid by the taxpayer and received by that person on the first day of that third taxation year and section 1015 is applicable to the extent that it would apply if such amount were actually paid; and

ii.  that person is deemed to have made a loan to the taxpayer on the first day of that third taxation year, equal to the unpaid amount minus the amount deducted or withheld therefrom by the taxpayer on account of the tax payable by that person for that third taxation year.

(2)  However, where the taxpayer is a corporation, the amount is unpaid upon the winding-up of such corporation and the latter is wound up before the end of the second taxation year following the year in which the debt was incurred, the amount so unpaid must be included in computing the corporation’s income for the taxation year in which it is wound up.

1972, c. 23, s. 381; 1973, c. 17, s. 54; 1997, c. 3, s. 71; 1997, c. 14, s. 78; 1997, c. 31, s. 49.