Although the CRA doesn’t mention Delle Donne v R, 2015 TCC 150 (discussed here), it recently considered when a victim of a ponzi scheme can write off a bad debt in respect of interest previously included in income. See 2017-0691941I7 (French only). The CRA takes the position that it will generally accept that a claim for a bad debt under paragraph 20(1)(p) of the Income Tax Act (Canada) can be made in the year in which charges are laid with respect to the scheme. The CRA acknowledges, however, that a taxpayer might make the claim in an earlier year, depending on the circumstances.
Per Lyons J in Kokai-Kuun Estate v R, 2015 TCC 217: a taxpayer cannot add to the cost of vacant land interest and property taxes paid in respect of the land where it was acquired for “investment” purposes but never rented or used in a development business (that is, the land was acquired to realize a capital gain).
The deceased taxpayer’s representative had also tried to claim the benefit of a capital loss supposedly realized in a prior year in respect of amounts the taxpayer had advanced to a corporation. Justice Lyons wasn’t entirely happy with the evidence presented regarding the amounts advanced, but she found that the fact the taxpayer had never claimed the loss or, more importantly, filed an election under paragraph 50(1)(a) in respect of the bad debt was fatal to the claim. She pointed out that the taxpayer’s representative might have applied under the taxpayer relief provisions to permit the late-filing of the election (per subsection 220(3.2) and paragraph 600(b) of the Regulations). The representative hadn’t done so, however, and the Tax Court did not have the jurisdiction to entertain such a request.
In Gaumond v R, 2014 TCC 339, an informal procedure case, the taxpayer, as part of a proposal under the Bankruptcy and Insolvency Act, forgave a debt owed to him by a CCPC he controlled. The Tax Court denied the taxpayer’s claim for an ABIL because he had forgiven the debt before the year-end (and so it was not owing to him at the year-end as required by subsection 50(1)), and he had not disposed of the debt to an arm’s length person as required by 39(1)(c)(ii) (he had merely forgiven it, which is deemed to be a disposition but not to an arm’s length person). See also St-Hilaire v R, 2014 TCC 336, another informal procedure case. Query whether the result would have been different if the taxpayers in these cases had simply agreed to postpone their debts to the claims of the other creditors, which would have left the debts outstanding and thus capable of being dealt with under 50(1). Joan Jung, “Effect of BIA Proposal on ABIL Claim” (July 2015) 15:1 Tax for the Owner-Manager 5-6.