29 May 1991 Ruling 910341 F - Dispositions - Absence of Consideration

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.

24(1)

This is in reply to your letter dated February 1, 1991 regarding the tax treatment 24(1) The Facts you have presented follow.

Facts

24(1)

Issues

24(1)

Our Comments

Interpretation Bulletin IT-460, Dispositions - Absence of Consideration states in Paragraph 4 that "The following occurrences do not constitute a disposition (within the meaning of paragraph 54(c)) of a share of a corporation...(c) the corporation goes into receivership or (d) the corporation becomes bankrupt."

Generally, a shareholder of a Small Business Corporation ("SBC") can only deduct an allowable business investment loss when he or she disposes of the share to an arm's length third party.  A shareholder may however deduct an unrealized loss under subparagraph 50(1)(b)(iii) of the Act in the year that the corporation is considered to be insolvent, does not carry on any business and can be expected to be dissolved provided the following conditions are met:

•     at the end of the year, the fair market value of the shares is nil;

•     at the end of the year, it is reasonable to expect that the corporation will be dissolved (or wound up) and will not begin carrying on any business; and

•     the corporation in fact does not commence business in the year or within 24 months following the end of that year.

The date the ABIL is to be recognized will therefore depend on either the date the share was actually disposed of or the date the conditions noted above have been or will be met.

Applying this legislation to the 24(1) situation, a number of assumptions must be made in order to formulate an opinion as to when the loss occurred and in what form.  Firstly, while never so stated in the material provided to us, we assume that

24(1)

24(1)

We trust these comments are of assistance.

for DirectorBusiness and GeneralLegislative and Intergovernmental Affairs Branch