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.
April 2, 1981
REGINA DISTRICT OFFICE
HEAD OFFICE Non-Corporate Rulings Division W.G. Pembroke
J. Flett Business Audit
Loan Guarantees & Business Investment Losses
This is in response to your memorandum of March 11th concerning the application of the business investment lose provisions when the chief shareholder of a C.C.P.C. is required to honour loans of the corporation which he personally guaranteed for no consideration.
The corporation in question was in debt to a bank for $14,000 at the time it ceased to permanently carry on its business in April of 1978. The chief shareholder paid 4,000 to the bank in 1978 in accordance with his guarantee and this is the only payment made on the indebtedness to date.
The question posed is basically what amount may be written off in 1978 as a business investment loss;
a) 1/2 of the $14,000 total debt $7,000
b) 1/2 of the $4,000 payment made in the year $2,000
We are of the opinion that the (b) amount above is the amount eligible to be written off as a business investment loss in 1978 provided the three conditions set out in paragraph 5 of IT-239R are met.
The individual, in this situation, would be considered to have acquired a debt of the corporation equal to the payments made under the guarantee at the time the payments are made. In this connection, the content of paragraph 4 of IT-239R2 is wholly applicable, wherein we say it is a question of fact if a bad debt exists to which subsection 50(1) applies.
Your last paragraph relating to the possibility of one-half of the $14,000 being charged off in 1978 does not require a reply as a result of our foregoing response.
for Director Non-Corporate Rulings Division
50(1)
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