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: General questions concerning the treatment of a loan as a bad debt.
Position: General comments provided.
Reasons: See below.
XXXXXXXXXX 2014-052536
G. Godson
May 22, 2014
Dear XXXXXXXXXX:
Re: Bad debts and reserves for doubtful accounts
We are writing in reply to your letter of March 25, 2014, requesting our comments to your questions concerning a loan with a taxpayer and the treatment of that loan as a bad debt. In particular, you wish to know whether your debt/loan with a particular corporation could be treated as a bad debt for income tax purposes by that corporation.
Our Comments
Paragraph 20(1)(p) of the Income Tax Act (the "Act") provides for the deduction of losses incurred through the uncollectability of accounts or loans receivable, which arose in the ordinary conduct of a taxpayer's business, as well as of certain lending assets of a taxpayer who was an insurer or whose ordinary business included the lending of money.
As noted in your inquiry, Interpretation Bulletin IT-442R, Bad Debts and Reserves for Doubtful Debts, discusses the deduction of bad debts, as well as the inclusion in income of the subsequent recovery of any such amounts. With respect to your questions concerning the loans of a financial institution, we draw your attention to paragraphs 10 to 13 of IT-442R, which discuss uncollectible loans or lending assets. Whether a particular amount is a bad debt of a taxpayer is a question of fact, to be determined on a case-by-case basis.
The confidentiality provisions of the Act prevent Canada Revenue Agency officials from discussing a taxpayer's affairs with a third party without the taxpayer's written authorization. Therefore, we cannot comment on the other taxpayer you mention in your letter, or provide details of its affairs.
We trust these comments will be of assistance.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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