,canada ,cu/oms                       #a
& ,rev5ue ,ag5cy

          ,9t]pret,n ,bullet9
    
,subject3 ,9come ,tax ,act
  ,capital ,debts ,e/abli%$ 6be ,bad
  ,debts
,numb]3 ,,it-#aei;,r#c
,date3 ,may #a1 #aihi
,ref];e3 ,p>agraph #ej7#a77a7 & subsec;n
  #ej7#b7 7,al subsec;ns #bj7#d7 &
  #da7#c71 p>agraphs #bj7#a77p71
  #ci7#a77b71 #dj7#b77g7 & #ed7e71 &
  subp>agraphs #ed7f77;ii7 &
  #ed7i77;iii774

               ,applic,n
    
  ,? bullet9 replaces & c.els ,9t]pret,n
,bullet9 ,,it-#aei;,r#b dat$ ,decemb]
#ah1 #aigi4 ,curr5t revi.ns >e designat$
0v]tical l9es4

                                      #a
                ,summ>y              a#a
    
  ,? bullet9 4cusses ! tax implic,ns :5
a taxpay] e/abli%es t a debt on capital
a3.t is bad4
  ,! -;t>y 2l expla9s ! deem$ 4posi;n &
reacquisi;n rules set \ 9 p>agraph
#ej7#a77a7 = capital debts 9 g5]al t >e
bad & 9 subsec;n #ej7#b7 = s* debts >is+
on ! 4posi;n ( p]sonal-use prop]ty4 ,al
expla9$ >e ! re/ric;ns set \ 9 p>agraph
#dj7#b77g7 ": s* a debt 0 acquir$ 0a
taxpay] o!r ?an =! purpose ( e>n+ 9come
f a busi;s or prop]ty1 or is [+ 0a non-
>m's l5g? "py4 ,set \ 9 #aj 2l >e !
,de"p;t's views on :5 a debt is 3sid]$
6h 2come bad & on ! require;t t ! :ole
am.t (! debt1 or ! rema9d] "!(1 m/ 2
bad4

          ,4cus.n & ,9t]pret,n
    
#a4 ,": a taxpay] e/abli%es t an am.t
  receiva# on capital a3.t 7o!r ?an 9
  respect (! 4posi;n (a p]sonal-use   #b
             ,,it-#aei;,r#c          b#a
  prop]ty7 has 2come a bad debt 9 a
  tax,n ye>1 p>agraph #ej7#a77a7
  provides =a deem$ 4posi;n at ! 5d (!
  ye> &a reacquisi;n immly "!af at a co/
  ( nil4 ,? norm,y results 9 a bad debt
  2+ a capital loss =! ye> ) any recov]y
  (! debt 2+ a capital ga94
#b4 ,"u subp>agraph #dj7#b77g77;ii71 a
  taxpay]'s capital loss on ! 4posi;n (a
  debt or o!r "r 6rcv an am.t is nil
  un.s
  7a7 ! debt or "r 0 acquir$ 0! taxpay]
    =! purpose ( ga9+ or produc+ 9come
    7o!r ?an exempt 9come7 f a busi;s or
    prop]ty1 or
--------------------------------------#b
  7b7 ! debt or "r 0 acquir$ 0! taxpay]
    z 3sid],n =! 4posi;n ( capital
    prop]ty 6a p]son ) :om ! taxpay] 0
    d1l+ at >m's l5g?4
  ,": an am.t receiva# c 2 e/abli%$ 0!
  taxpay] 6be a bad debt 9 a ye> b
  subp>agraph #dj7#b77g77;ii7 wd apply
  6d5y ! result+ capital loss1 !      #c
             ,,it-#aei;,r#c          a#b
  ,de"p;t takes ! view t p>agraph
  #ej7#a77a7 w n apply4 ,! result ( n
  apply+ p>agraph #ej7#a77a7 is t "! is
  no deem$ 4posi;n or reacquisi;n (!
  debt & any r1liz,n (! debt 9 future
  ye>s w reduce ! adju/$ co/ base "!( r
  ?an produce a capital ga94 ,? view is
  n a6ect$ 0! fact t ! debt is writt5 (f
  = a3.t+ purposes4 7,": ! debt 9 "q is
  a loan be>+ less ?an a r1sona# rate (
  9t]e/1 ref] 6,,it-#bci;,r#b
  8,deductibil;y ( ,capital ,losses f
  ,gu>antee+ ,loans = ,9adequate
  ,3sid],n & f ,loan+ ,funds at less ?an
  a ,r1sona# ,rate ( ,9t]e/ 9 ,non->m's
  ,l5g? ,circum/.es047
#c4 ,6illu/rate ! -;ts 9 #b abv1 assume
  t a taxpay] e/abli%es a note receiva#
  = 4#a1jjj 6be a bad debt 9 #aihh4 ,!
  debt 0 n acquir$ 0! taxpay] =! purpose
  ( ga9+ or produc+ 9come or z 3sid],n
  =! 4posi;n ( capital prop]ty 6an >m's
  l5g? p]son1 s t subp>agraph
  #dj7#b77g77;ii7 prev5ts a claim 9   #d
             ,,it-#aei;,r#c          b#b
  respect (a 4#a1jjj capital loss4 ,if
  p>agraph #ej7#a77a7 7 6be appli$1 "!
  wd 2 a deem$ reacquisi;n (! debt at a
  .nil adju/$ co/ base & any subsequ5t
  recov]y ( all or a por;n (! debt wd 2
  tr1t$ z a capital ga94 ,9 ^!
  circum/.es1 ! taxpay] is n requir$
  6e/abli% t ! debt is bad 9 #aihh1 s t
  any subsequ5t recov]y ( all or a por;n
  (! debt w reduce xs adju/$ co/ base r
  ?an 2 tr1t$ z a capital ga94
#d4 ,": a taxpay] e/abli%es a debt 6be a
  bad debt "u sec;n #ej1 ! loss w 2
  deem$ "u subp>agraph #ed7i77;iii7 n
  6be 8a sup]ficial loss04
#e4 ,": a debt : >ose f ! 4posi;n (
  p]sonal-use prop]ty 7see ,,it-#ccb;,r
  8,p]sonal-,use ,prop]ty07 is [+ 6a
  taxpay] 0a p]son d1l+ at >m's l5g? )!
  taxpay]1 subsec;n #ej7#b7 3ta9s deem$
  4posi;n & reacquisi;n rules t all[ a
  claim 6be made 9 respect (a capital
  loss =! tax,n ye> 9 : ! debt is
  e/abli%$ 6be bad4 ,? capital loss   #e
             ,,it-#aei;,r#c          c#b
  _c exce$ ! capital ga9 r1liz$ on !
  4posi;n t gave rise 6! debt4 ,"u
  subsec;n #ej7#b71 ! debt is deem$ 6h
  be5 4pos$ (= proce$s equal 6! am.t 0:
  xs adju/$ co/ base immly 2f ! 5d (!
  ye> exce$s ! am.t (! ga9 on ! 4posi;n
  (! p]sonal-use prop]ty1 &! taxpay] is
  deem$ 6h reacquir$ ! debt immly af !
  5d (! ye> at a co/ equal 6^? proce$s4
--------------------------------------#c
#f4 ,": a debt : >ose f ! 4posi;n (
  p]sonal-use prop]ty is [+ 6a taxpay]
  0a p]son n d1l+ at >m's l5g? )!
  taxpay]1 ! -;ts 9 #e abv d n apply &
  any loss result+ on ! 4posi;n (! debt
  is d5i$ "u subp>agraph
  #dj7#b77g77;iii74
#g4 ,a debt >is+ on ! 4posi;n (a li/$
  p]sonal prop]ty is n "o (! items li/$
  "u ! def9i;n ( li/$ p]sonal prop]ty 9
  p>agraph #ed7e74 ,r1 x is 9clud$ "u
  subp>agraph #ed7f77;ii7 9 ! def9i;n (
  p]sonal-use prop]ty4 ,?us :5 s* debts
  >e e/abli%$ 6be bad1 any capital    #f
             ,,it-#aei;,r#c          a#c
  loss is calculat$ z 9 #e abv r ?an z a
  8li/$ p]sonal prop]ty0 loss "u
  subsec;n #da7#c74
#h4 ,an example 6illu/rate ! -;ts 9 #g
  abv foll[s3
  ,assume t a taxpay] sells a li/$
  p]sonal prop]ty at >m's l5g? =
  4#aj1jjj & t ! adju/$ co/ base ( t
  prop]ty is 4#f1jjj4 ,(! sale price1
  4#e1jjj is pd at ! date ( sale &a note
  receiva# is tak5 back =! rema9d]4 ,!
  note receiva# is subsequ5tly e/abli%$
  6be a bad debt4 ,a capital loss on !
  debt is det]m9$ pursuant 6subsec;n
  #ej7#b7 z foll[s3








                                      #g
             ,,it-#aei;,r#c          b#c
,adju/$ ,co/ ,base (
  ,debt """""""""""""""" 4#e1jjj
,less3 ga9 on 4posi;n (
  ,prop]ty """"""""""""" 4#d1jjj
,deem$ ,proce$s (
  ,4posi;n """"""""""""""""""""" 4#a1jjj
,less3 ,adju/$ ,co/ ,base
  ( ,debt """""""""""""""""""""" 4#e1jjj
,capital ,loss """"""""""""""""" 4#d1jjj

  ,z c 2 se5 f ? example1 if ! loss f !
  deem$ 4posi;n (! debt 7 3sid]$ 6be a
  loss f ! 4posi;n ( li/$ p]sonal
  prop]ty1 a loss ( 4#e1jjj wd h be5
  availa# 6net ag/ ga9s f li/$ p]sonal
  prop]ty4 ,h["e1 0r1son ( subsec;n
  #ej7#b71 ! loss 9 ? example is 3sid]$
  6be 4#d1jjj & is tr1t$ z an ord9>y
  capital loss &! debt is deem$ 6be
  reacquir$ at a co/ ( 4#a1jjj4
#i4 ,": a debt is e/abli%$ 6h 2come a
  bad debt1 any capital loss t results w
  2 reduc$ "u p>agraph #ci7#a77b7 0!
  am.t ( any deduc;n made 9 respect   #h
             ,,it-#aei;,r#c          c#c
  (! loss "u any provi.n (! ,act4 ,=
  example1 ref] 6,,it-#bbj;,r 8,capital
  ,co/ ,all[.e-,proce$s ( ,4posi;n (
  ,deprecia# ,prop]ty0 : 4cusses !
  situ,n ": a capital loss wd 2 reduc$
  0! am.t deduct$ "u subsec;n #bj7#d7 z
  an uncollecti# por;n ( proce$s (
  4posi;n ( deprecia# prop]ty &
  ,,it-#abc;,r#d 8,4posi;ns (&
  ,transac;ns ,9volv+ ,eligi# ,capital
  ,prop]ty0 : 4cusses ! situ,n ": a
  capital loss wd 2 reduc$ 0an am.t
  deducti# "u p>agraph #bj7#a77p7 z a
  result (a bad debt >is+ on ! sale (
  eligi# capital prop]ty4
--------------------------------------#d
#aj4 ,! "t at : a debt 2comes a bad debt
  is a "q ( fact & any deci.n made m/ 2
  dep5d5t ^u ! circum/.es 9 ea* case4 ,a
  det]m9,n 0a cr$itor t a debt has 2come
  bad 9 a "picul> tax,n ye> m/ 2
  support$ 0all relevant & mat]ial
  facts4 ,g5],y1 a debt w n 2
  uncollecti# at ! 5d (a "picul>      #i
             ,,it-#aei;,r#c          a#d
  tax,n ye> un.s ! cr$itor has exhau/$
  all legal m1ns ( collect+ x or ": !
  debtor has 2come 9solv5t & has no m1ns
  ( pay+ x4 ,a debt is 3sid]$ bad =!
  purpose ( sec;n #ej only :5 ! :ole
  am.t is uncollecti# or :5 a por;n ( x
  has be5 settl$ &! rema9d] is
  uncollecti#4 ,o!rwise1 ": a por;n (a
  debt c 2 3sid]$ uncollecti#1 ? por;n
  is n 3sid]$ 6be bad =! purpose ( sec;n
  #ej ev5 ?\< a3.t+ practice may require
  a write-d[n 6r1liza# value4 ,": an
  am.t [+ 0"o debtor 3si/s ( m ?an "o
  debt1 ea* debt is 3sid]$ sep>ately 9
  det]m9+ ! ext5t 6: ! abv -;ts apply4
  ,= example1 "o debt may 2 secur$ &
  collecti# ":as ano!r debt may 2
  unsecur$ & uncollecti# &1 "!=e1
  qualify z a bad debt4




                                     #aj