VII. Debts
24.A65. A taxpayer may lend a sum of money under a loan agreement which provides that the debt is repayable on demand made orally by the taxpayer or on a written demand signed by the taxpayer or, if no demand is made, by instalments over a long term. No gift duty is payable when the loan is made; however, if the taxpayer dies without having made a demand for repayment, the instalments remaining to be paid are discounted in determining the value of the debt included in the taxpayer's estate. This is a special instance of the kind of option considered in paragraph 24.A18. If the right to call for repayment of a debt is allowed to lapse, the creditor should be deemed to have made a gift equal to the difference between the value of the debt had the right been exercised and the value of the debt after the lapse. Thus, in the case of the loan agreement referred to above, the undiscounted amount of the unpaid instalments will be included in the estate.
24.A66. The release of a recoverable debt for inadequate consideration should constitute a gift of the amount of the debt by the creditor. A debt that becomes unenforceable should be deemed to have been released for no consideration at the time it becomes unenforceable if the Commissioner has reasonable grounds for believing that the debt was allowed by the creditor to become unenforceable in order to avoid gift duty. If, subsequently, the debtor makes a payment to his former creditor which, had the debt not become unenforceable, would have been consideration to which the creditor was entitled on account of the debt, the payment should not be deemed to be a gift by the debtor to the creditor. Any gift deemed to have been made by the creditor when the debt became unenforceable should be reduced by the amount of any such subsequent payment and an appropriate refund of tax allowed.