Vivaconcept International - Tax Court finds that voluntarily agreeing to a debt reduction under a proposal does not preclude a bad debt claim for the related GST

Subject to conditions, the ETA allows both a bad debt claim (under s. 231) for the GST included in a bad trade debt, and for a credit (under s. 232) for the related GST where the consideration for the supply is voluntarily adjusted after the fact and a credit note is issued by the creditor "within a reasonable time" of that adjustment.  What happens if, after the trade debtor becomes insolvent, the creditor agrees with the debtor to reverse the debt under a proposal with the creditors?

Tardif J appears to have concluded that such an adjustment does not preclude a s. 231 bad debt claim.  Furthermore, he indicated in the alternative that issuing a credit note 23 months after the adjustment would normally represent "a relatively long time," but here that was an acceptable delay for s. 232 purposes as the credit note was issued by the taxpayer shortly after being informed by Revenue Quebec that it was denying the bad debt claim.

Neal Armstrong.   Summaries of Vivaconcept International Inc. v. The Queen, 2013 CCI 336 under ETA – s. 231(1) and s. 232(3).