Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether a loss on debt would qualify as a "business investment loss".
Position:
No, based on the limited information provided
Reasons:
The corporation owing the debt is not, nor has it been at any time in the previous 12 months, a "small business corporation" as defined in subsection 248(1).
XXXXXXXXXX 2000-005871
Cornelis Rystenbil, CGA
February 22, 2001
Dear Sir:
Re: Business Investment Losses
This is in reply to your letter of November 28, 2000, in which you requested our views on whether your client will be entitled to claim an allowable business investment loss upon the dissolution of a corporation.
It is our understanding that your client, together with several other individuals advanced money to the corporation in the form of interest bearing promissory notes with a fixed repayment date or as shareholder loans with no interest or repayment terms. The corporation has been inactive since 1985 and does not own any assets.
Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments. It should be noted that for purposes of this reply, we assume that subparagraph 40(2)(g)(ii) of the Income Tax Act (the "Act") would not apply to deem a loss on the above noted debts to be nil, although we have not been provided with information in order to make such a determination
In order for a taxpayer's loss to qualify as a "business investment loss" (a "BIL"), as defined in paragraph 39(1)(c) of the Act, it must, inter alia, result from the disposition of a property that is a debt owing to the taxpayer by a "small business corporation". The term "small business corporation" ("SBC") is defined in subsection 248(1) of the Act. In general terms, an SBC, at a particular time, is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which, at that time, is attributable to assets used principally in an active business carried on primarily in Canada by the corporation or a related corporation, to shares or debts of connected SBCs, or to a combination of the two. In addition, for purposes of determining a BIL from a disposition, an SBC includes a corporation that was an SBC at any time in the 12 months before the disposition.
Accordingly, whether a loss on a disposition of the above-noted debts would qualify as a BIL is a question of fact that depends, inter alia, on the status of the corporation as an SBC at the time of disposition or in the preceding 12 months. Based on the limited information provided, it does not appear that, since 1985, the corporation owned any shares or debt of an SBC nor has the corporation itself carried on an active business or its assets been used in an active business. Consequently, in our view, the corporation does not currently qualify, and has not qualified in the previous 12 months, as an SBC, such that a loss on the above-noted debts could not, at this time, qualify as a BIL.
We trust that these comments will be of assistance.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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