CRA indicates that the adoption of IFRS 9 means that loan impairment amounts for ITA and GAAP purposes will differ

In essence, the s. 20(1)(l) reserve for doubtful loans for a money-lending business of a financial institution takes into account, as a key component, 90% of the reserve or allowance for impairment determined in accordance with GAAP. IFRS 9, which replaced IAS 39 effective after 2018, introduced an “expected credit loss” (ECL) framework for the recognition by financial institutions of credit losses, which are determined as the sum of the amounts determined under the following three stages:

• Stage 1: An allowance to recognize ECLs resulting from default events that are possible within 12 months from when a loan is originated or purchased as well as existing loans with no significant increase in credit risk since initial recognition.
• Stage 2: An allowance to recognize ECLs for loans for which there have been significant increases in credit risk since initial recognition and the credit risk is not considered low.
• Stage 3: An allowance for credit-impaired loans where events have occurred to cause impairment.

CRA stated:

In order to determine the amount of an impaired loan reserve that may be deductible by a financial institution the Act requires that each loan must be specifically identified as being impaired and that impairment must be measurable on a loan by loan basis. A reserve set up to provide for possible loan losses with no evidence of impairment would be a reserve for a contingency, and subject to the prohibition in paragraph 18(1)(e) … .

Thus, CRA considers that the IFRS 9 approach starts recognizing a loss at too early a stage rather than measuring impairment on a loan by loan basis.

Neal Armstrong. Summary of 19 July 2021 External T.I. 2020-0869172E5 under s. 20(1)(l)(ii)(D).