[amah]

I've got a client have a gain on forgiveness of debt. I've read the rules and I know I should apply this gain against any previous losses and then 50% of the left over should be inclued to income. However, when I try to to apply the gain to restricted farm losses (under adjustment of S80) in Profile, it did not reduce the taxable income. Also, when I try to input the left over gain into S1 gain under gain on settlement of debt, that gain is definitely taxed 100%. Anyone knows how I should input this in T2? Thanks!

[Joe]

amah, on Jul 25 2007, 09:44 AM, said:

I've got a client have a gain on forgiveness of debt. I've read the rules and I know I should apply this gain against any previous losses and then 50% of the left over should be inclued to income. However, when I try to to apply the gain to restricted farm losses (under adjustment of S80) in Profile, it did not reduce the taxable income. Also, when I try to input the left over gain into S1 gain under gain on settlement of debt, that gain is definitely taxed 100%. Anyone knows how I should input this in T2? Thanks!

I dont think you have quite got how it is supposed to work.
At least, I cannot tell from what you posted whether you got it or not....
This area can be quite tricky.
Perhaps you could rephrase what you are doing at each step, and pursuant to which ITA section?

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[amah]

I am looking at IT-293R and section 80. It stated that the gain is subject to Section 80 and applied to reduce the noncapital losses, farm losses, net capital losses, and restricted farm losses first. Whatever forgiven amount remains after all possible reductions have been made 50% will be included in computing the income. My client had a restricted farm losses and I would like to apply it first and I can't figure out a way to apply it in T2 without over riding some boxes (which I don't think is the right way to do it). And I am not sure how to input the gain. Should it be included in S6? And yes, I am cofused.

[Joe]

amah, on Jul 25 2007, 10:55 AM, said:

I am looking at IT-293R and section 80. It stated that the gain is subject to Section 80 and applied to reduce the noncapital losses, farm losses, net capital losses, and restricted farm losses first. Whatever forgiven amount remains after all possible reductions have been made 50% will be included in computing the income. My client had a restricted farm losses and I would like to apply it first and I can't figure out a way to apply it in T2 without over riding some boxes (which I don't think is the right way to do it). And I am not sure how to input the gain. Should it be included in S6? And yes, I am cofused.

ITs are not Income tax (just an explanation), but I dont believe that a 1979 IT with a 1983 SR can refer to 50% - Perhaps you could quote what you are reading exactly?

You have not referred to the exact paragraph under which you are seeking to "apply" a "restricted farm loss"?

You need to first be satisfied that your application of the ITA paragraphs, in order, gives you exactly what the Act requires, before you look to why Profile agrees or doesnt agree.

Generally Profile is correct WITHOUT overrides. (Assuming all prior data has been correctly entered).
If you think an override is warranted, you FIRST need to determine precisely and exactly FROM THE ITA, whether this may be so....


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[amah]

I am looking at IT293R (CRA publication) on Debtor's gain on settlement of Debt and Section 80(3)© of Income Tax Act for the restricted farm loss. According to the CRA T2 guide, I can use section 80 adjustment on S4 line 440 to apply the restricted farm losses but the amount would not transfer to the T2 S1.
And I am reading Section 80(13) of the Income Tax Act for the income inclusion.

[Joe]

amah, on Jul 25 2007, 11:38 AM, said:

I am looking at IT293R (CRA publication) on Debtor's gain on settlement of Debt and Section 80(3)© of Income Tax Act for the restricted farm loss. According to the CRA T2 guide, I can use section 80 adjustment on S4 line 440 to apply the restricted farm losses but the amount would not transfer to the T2 S1.
And I am reading Section 80(13) of the Income Tax Act for the income inclusion.

You say you are "looking at IT293R" but you dont say what paragraphs you are relying on for your interpretation.

I have no idea what you mean by "apply the restricted farm losses"?
S80(3)(c ) refers to the order of application of the Forgiven amount and RFLs. Perhaps you would like to give some numbers.
What was the balance brought forward of the RFL for each prior taxation year?

S80(13) has the 50% Ref (E) (Assuming the Debtor is not a partnership).

Aargh - Ive edited this numerous times now, being too much quickly off the cuff - gonna have to leave it for now...
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