Donne – Tax Court of Canada finds that a doubtful debt reserve (or other tax filing position) can be claimed as at the year end in light of subsequently revealed information, and can be claimed implicitly or on appeal

The taxpayer was owed interest (at 25% p.a.) by a relative’s company which, in turn, had essentially all its assets invested in loans to an arm’s length company which, as it emerged by April 2010, was engaged in a Ponzi scheme. Owen J found that whether there was a bad (or doubtful) debt for the interest as at the taxation year end (December 31, 2009) could be assessed in light of the circumstances at the filing-due date (April 30, 2010) – stating a useful principle that "the taxpayer may rely on information that comes into existence after the end of the year, but before the filing-due date, to fulfill his…obligation to report."

Respecting an argument that the taxpayer was required by s. 20(1)(l) or (p) to have "included" the interest in income before being entitled to the reserve – whereas, in fact, neither interest nor deduction appeared in the return (although an explanatory letter was attached) - Owen J stated (perhaps inconsistently with Langdon, Sears and Dominion) that this did "not alter the fact that the interest was included in [the taxpayer’s] income for 2009 by virtue of the application of the provisions of the ITA to the facts." Furthermore, "it is well established that it is open to a taxpayer to amend his return through the appeal process."

As its computers are dyslexic, CRA dislikes an income reporting or reserve deduction requirement being satisfied by attaching a letter.

Neal Armstrong. Summaries of Donne v. The Queen, 2015 TCC 150, under s. 20(1)(l) and s. 20(1)(p)(i).