I'm preparing a T2 for a client. A family member of the shareholders had lent the corporation money. The family member passed away and the loan was forgiven.

I'm preparing a T2 for a client. A family member of the shareholders had lent the corporation money. The family member passed away and the loan was forgiven.  How do I get rid of the loan without creating Income?  Move it to contributed capital?  Transfer the Loan to the existing Shareholders?  We want to be compliant tax wise, but as this loan slowing accrued overtime it seems unfortunate to have it all written off in one year creating income when the intention was never to have the loan paid back.

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