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.
Principal Issues: Whether it is possible for a taxpayer to deduct an amount for bad debts if the amount has not been included in computing the taxpayer's income for the year or a preceding year.
Position: A deduction under subparagraph 20(1)(p)(ii) of the Act is not restricted to amounts that have been included in computing the taxpayer's income for the year or a preceding taxation year.
Reasons: 20(1)(p)(ii)
2009-032819
XXXXXXXXXX Sylvie Danis
(613) 957-3496
July 17, 2009
Dear XXXXXXXXXX :
Re: Bad debts under subparagraph 20(1)(p)(ii) of the Income Tax Act (the "Act")
This is in response to your letter dated June 19, 2009 in which you inquired whether it is possible for a taxpayer to deduct an amount for bad debts if the amount has not been included in computing the taxpayer's income for the year or a preceding year.
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer and completed transactions. 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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the appropriate Tax Services Office. However, we are prepared to provide you with the following general comments.
Subparagraph 20(1)(p)(ii) of the Act allows a taxpayer whose ordinary business includes the lending of money to obtain a deduction for that part of the amortized cost at the end of the year of an uncollectible loan or lending asset made or acquired in the ordinary course of the taxpayer's business of the lending of money. A deduction under subparagraph 20(1)(p)(ii) of the Act is not restricted to amounts that have been included in computing the taxpayer's income for the year or a preceding taxation year.
Whether an amount is uncollectible or a bad debt is a question of fact to be determined on a case by case basis. Such a decision should be made only after determined efforts to collect the debt have been unsuccessful or there is clear evidence to indicate that the debt has in fact become uncollectible. If a debt is merely doubtful of collection, it should not be claimed as a bad debt but should be considered for purposes of a reserve for doubtful debts under paragraph 20(1)(l) of the Act.
We trust the above comments are of assistance. However, as stated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,
Terry Young, CA
A/Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009