Francis & Associates – Tax Court of Canada finds that substantively-correct bad debt deductions cannot be claimed in an amended return

Due to problems with its accounting system, a law firm did not discover until late in 2005 that billings made in 2002 to 2004 and which had become bad in those years had not been written off in the accounts.  It corrected this and other issues through the filing by its partners of amended returns for those years, which were reassessed, but with the bad debt deductions being denied.

Bocock J denied the deductions.  This is questionable.  The authorities cited by him support the proposition that receivables which become bad in a particular year cannot be claimed as a bad debt in a return for another year, rather than the proposition that they cannot be claimed as a bad debt in an amended return for that year.

However, he found that client-related disbursements which the firm had failed to bill to the clients could be deducted on general principles, which sounds right.

Neal Armstrong.  Summary of Francis & Associates v. The Queen, 2014 DTC 1146 [at 3468], 2014 TCC 137 under s. 20(1)(p)(i).