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

          ,9t]pret,n ,bullet9
    
,subject3 ,9come ,tax ,act
  ,bad ,debts & ,res]ves = ,d\bt;l
  ,debts
,numb]3 ,,it-#ddb;,r
,date3 ,septemb] #f1 #aiia
,ref];e3 ,p>agraphs #bj7#a77p7 &
  #bj7#a77l7 7al sec;ns #ab.d1 #bb &
  #aj.f2 subsec;ns #bj7#d71 7#d.a71
  7#d.b7 & 7#bg71 #ci7#aa71 #ej7#a71
  #ih7#c7 &! def9i;n ( 8amortiz$ co/0 &
  8l5d+ asset0 9 #bdh7#a72 & p>agraphs
  #ab7#a77d71 7;i7 & 7i4#a71 #ah7#a77e71
  #bj7#a77n71 #ed7b7 & #fi7#a77b77

               ,applic,n
    
  ,? bullet9 c.els & replaces ,,it-#ddb
dat$ ,febru>y #aa1 #aihj4 ,? bullet9
applies = tax,n ye>s & fiscal p]iods
2g9n+ af ,june #ag1 #aihg & 5d+ af    #a
              ,,it-#ddb;,r           a#a
#aihg4 ,= tax,n ye>s & fiscal p]iods
2g9n+ 2f ,june #ah1 #aihg or 5d+ 2f
#aihh1 pl1se ref] 6! law4

                ,summ>y
    
  ,? bullet9 4cusses ! deduc;n ( bad
debts1 &( am.ts 9 respect ( uncollecti#
loans or l5d+ assets 0an 9sur] or a
taxpay] ^: ord9>y busi;s 9cludes ! l5d+
( m"oy4 ,z well1 ! bullet9 4cusses !
9clu.n 9 9come (! subsequ5t recov]y (
any s* am.ts4 ,x al d1ls )! det]m9,n (
res]ves = d\bt;l debts4

          ,4cus.n & ,9t]pret,n
    
      ,bad ,debts 7p>agraphs #a-i7
    
#a4 ,subp>agraph #bj7#a77p77;i7
  au?orizes a deduc;n =a bad debt if !
  foll[+ require;ts >e met3
  7a7 ! debt 0 [+ 6! taxpay] at ! 5d (!
    tax,n ye>1                        #b
              ,,it-#ddb;,r           b#a
  7b7 ! debt 2came bad dur+ ! tax,n ye>1
    &
  7c7 ! debt 0 9clud$ or is deem$ 6h be5
    9clud$ 9 ! taxpay]'s 9come = t tax,n
    ye> or a previ\s tax,n ye>4
  
  ,! require;t 9 7a7 abv prohibits a
  deduc;n "u subp>agraph #bj7#a77p77;i7
  ": a debt 0 sold1 4c.t$ or assign$
  absolutely 0! taxpay] dur+ ! c\rse (!
  ye>1 ev5 ?\< ! taxpay] may rema9 lia#
  69demnify ! pur*as] or assignee if !
  debt %d prove 6be uncollecti#4 ,h["e1
  ": s* a debt 0 (a k9d t wd h qualifi$
  = 3sid],n z a bad debt _h x be5 reta9$
  until ! 5d (! tax,n ye>1 any loss at !
  "t ( xs 4posi;n1 or lat] 2c ( non-
  pay;t 0! debtor1 wd norm,y 2 deducti#
--------------------------------------#b
  0! taxpay] z a g5]al busi;s exp5se4
  ,s* loss wd 2 deducti# provid$ !
  4posi;n (! debt 0 made 9 ! ord9>y
  c\rse (! busi;s or z "p ( trad+ 9
  a3.ts receiva#4                     #c
              ,,it-#ddb;,r           a#b
#b4 ,": all debts 79clud+ ! debts >is+ f
  c]ta9 loans7 >e 4pos$ ( z "p (!
  4posi;n (! :ole or a sub/antial "p (a
  busi;s1 ! v5dor &! pur*as] (! busi;s
  may elect jo9tly "u sec;n #bb 9
  respect (! debts4 ,? elec;n all[s !
  v5dor 6deduct any loss 9curr$ on sale
  (! debts 7exclud+ ^? previ\sly writt5
  (f z bad debts "u p>agraph
  #bj7#a77p771 &! pur*as] is requir$
  69clude ! same am.t 9 9come =! ye> (!
  sale4 ,! pur*as] may !n d1l )! debts =
  tax purposes z ?\< !y _h >is5 dur+ !
  c\rse (! pur*as]'s busi;s4 ,= details
  ab ! sec;n #bb elec;n1 ref] 6! curr5t
  v].n ( ,,it-#ahh1 ,sale ( ,a3.ts
  ,receiva#4
#c4 ,on ! o!r h&1 ": a debt 0 assign$1 b
  n absolutely1 0! taxpay] dur+ ! c\rse
  (! ye>1 ! debt is 3sid]$ 6be [+ 6!
  taxpay] at ! 5d (! tax,n ye> ev5 ?\< !
  taxpay] may 2 lia# 6furni% ! assignee
  ) o!r secur;y if ! assign$ debt %d
  prove 6be uncollecti#4 ,! t]m       #d
              ,,it-#ddb;,r           b#b
  8assign$01 z us$ 9 ? p>agraph1 ref]s
  6a transf] (a debt 6a ?ird "py 7!
  assignee7 0! taxpay] =! purpose (
  secur+ a debt [+ or a loan paya# 0!
  taxpay] 6! assignee4 ,! transf] norm,y
  gives ! assignee ! "r 6collect ! m"oy
  on ! assign$ debt : is appli$ z a
  pay;t (! debt [+ 6! assignee 0!
  taxpay]4
#d4 ,a debt 3t9ues 6be a debt [+ 6!
  taxpay] at ! 5d (! tax,n ye> ev5 ?\< x
  0 writt5 (f z a bad debt dur+ ! ye>4
  ,if a taxpay] foll[s ! practice (
  writ+ (f bad debts dur+ ! c\rse (a
  tax,n ye> r ?an wait+ until ! 5d (!
  ye>1 any recov]ies made lat] 9 ! ye>
  >e n br"\ 969come "u p>agraph
  #ab7#a77;i74 ,h["e1 s* recov]ies w
  reduce ! am.t all[$ 6be writt5 (f =
  tax purposes1 s9ce ! maximum am.t t
  may 2 claim$ z a bad debt is only !
  net am.t (a debt at ! 5d (! tax,n ye>4
#e4 ,z 9dicat$ 9 #a7b7 abv1 a bad debt
  may 2 claim$ 9 a tax,n ye> only     #e
              ,,it-#ddb;,r           c#b
  if ! debt 2came bad 9 t ye> reg>d.s (
  h[ l;g ! debt may h be5 \t/&+4 ,x al
  foll[s t a deduc;n =a debt t 2came bad
  9 "o tax,n ye> _c 2 def]r$ & claim$ 9
  a subsequ5t tax,n ye>4
--------------------------------------#c
  ,": x is 3sid]$ t a "p (a debt is
  collecti# &a "p is n1 a por;n only (!
  debt may 2 view$ z a bad debt4
#f4 ,"! >e no specific 3di;ns t m/ 2 met
  2f a debt may 2 class$ z a bad debt4
  ,s* a deci.n %d 2 made only af det]m9$
  ef=ts 6collect ! debt h be5 unsu3ess;l
  or "! is cle> evid;e 69dicate t x has
  9 fact 2come uncollecti#4 ,if a debt
  is m]ely d\bt;l ( collec;n1 x %d n 2
  claim$ z a bad debt b %d 2 3sid]$ =
  purposes (a res]ve = d\bt;l debts4 ,!
  fact t a recov]y is made af a debt is
  writt5 (f does n negate ! correct;s (a
  claim =a bad debt if ! recov]y cd n
  r1sonably h be5 =ese5 at ! "t ! debt 0
  writt5 (f4
                                      #f
              ,,it-#ddb;,r           a#c
#g4 ,": a taxpay] is deem$ 0p>agraph
  #fi7#a77b7 6h rcvd an am.t t is grt]
  ?an ! am.t actu,y rcvd 9 a non->m's
  l5g? 4posi;n ( prop]ty1 or any gift
  9t] vivos1 ! di6];e 2t ! am.t deem$ 6h
  be5 rcvd &! am.t actu,y rcvd is n a
  bad debt4
#h4 ,z \tl9$ 9 #a7c7 abv1 only a debt t
  0 previ\sly 9clud$ or deem$ 6h be5
  9clud$ 9 9come may qualify = purposes
  (a bad debt deduc;n4 ,! fact1 h["e1 t
  a bad debt may fail 6be deducti# = ?
  r1son does n necess>ily m1n t ! loss
  is n deducti# "u o!r provi.ns (! ,act4
  ,= example1 a taxpay] :o is 9 ! busi;s
  ( pur*as+ trade receiva#s is 5titl$
  6claim z a g5]al busi;s exp5se any
  loss on ! 4posi;n or r1liz,n (!
  receiva#s4 ,simil>ly1 a taxpay] :o
  makes adv.es 6an employee 6be rec\p$ \
  ( future -mis.ns 6be e>n$ 0! employee
  may 2 5titl$ 6deduct ! non-recov]a#
  por;n ( s* adv.es z a g5]al busi;s
  exp5se4                             #g
              ,,it-#ddb;,r           b#c
#i4 ,! sale (a capital asset may 5title
  ! v5dor 6rcv 9t]e/ on any por;n (!
  sales price t is [+4 ,if s* 9t]e/ 0
  report$ on a receiva# or a3rual basis1
  a deduc;n "u subp>agraph
  #bj7#a77p77;i7 may 2 claim$ = any "p (
  s* 9t]e/ t prov$ 6be uncollecti# b n =
  any "p (! pr9cipal am.t t 0 n collect$
  7see #af 2l74 ,if ! sale 9volv$ a
  deprecia# prop]ty 7o!r ?an a timb]
  res\rce prop]ty--see subsec;n
  #bj7#d.a771 any subsequ5t loss wd n 2
  deducti# "u subp>agraph #bj7#a77p77;i7
  b wd 2 subject 6! specific rule 9
  subsec;n #bj7#d74 ,ref] 6! curr5t v].n
  ( ,,it-#bbj1 ,capital ,co/ ,all[.e--
--------------------------------------#d
  ,proce$s ( ,4posi;n ( ,deprecia#
  ,prop]ty = fur!r 9=m,n4




                                      #h
      ,uncollecti# ,loans or ,l5d+   a#d
       ,assets 7p>agraphs #aj-ac7
    
#aj4 ,subp>agraph #bj7#a77p77;ii7 all[s
  a taxpay] :o is an 9sur] or ^: ord9>y
  busi;s 9clud$ ! l5d+ ( m"oy 6obta9 a
  deduc;n = t "p (! amortiz$ co/ at ! 5d
  (! ye> ( an uncollecti# loan or l5d+
  asset made or acquir$ 9 ! ord9>y c\rse
  ( busi;s4 ,subsec;n #bj7#bg7 provides
  t a loan or l5d+ asset w 2 deem$ 6be s
  acquir$ 0s* a taxpay] ": x 0 acquir$
  at fair m>ket value 0! taxpay] f a
  non->m's l5g? p]son :o 0 an 9sur] or
  ^: ord9>y busi;s 9clud$ ! l5d+ ( m"oy
  &! loan or l5d+ asset 0 made or
  acquir$ 9 ! ord9>y c\rse ( t p]son's
  busi;s ( 9sur.e or ! l5d+ ( m"oy4 ,!
  t]ms 8amortiz$ co/0 & 8l5d+ asset0 >e
  def9$ 9 subsec;n #bdh7#a74 ,! -;ts 9
  #c 6#f abv relat+ 6! det]m9,n ( :5 a
  debt is 3sid]$ [+1 &(! am.t "!( t is a
  bad debt 9 ! ye>1 al apply 6loans &
  l5d+ assets e/abli%$ 6h 2come
  uncollecti# 9 ! ye>4                #i
              ,,it-#ddb;,r           b#d
#aa4 ,= an am.t 6be deducti# on ! basis
  t ! taxpay]'s ord9>y busi;s 9clud$ !
  l5d+ ( m"oy1 x is n nec t ! taxpay] 2
  a m"oy-l5d] )9 ! re/rictive m1n+ t may
  2 giv5 6t t]m 9 a gov]n+ /atute4
  ,h["e1 x is n su6ici5t m]ely t loans
  >e made2 !y m/ 2 made z an 9tegral "p
  (a busi;s op],n4 ,x is requir$ t "! 2
  a c]ta9 sy/em & 3t9u;y 9 ! mak+ (
  loans1 &! purpose m/ n 2 ! o3a.nal
  9ve/;t ( surplus funds1 a3ommod,n 6frs
  or cu/om]s or adv.es t >e 9t5d$ 6rema9
  a "p (! capital (! borr[]4
#ab4 ,x does n foll[ t 2c a taxpay]'s
  ord9>y busi;s 9cludes ! mak+ ( loans1
  e loan made is necess>ily made 9 !
  ord9>y c\rse ( t "p (! busi;s4 ,a
  taxpay] :o is 9 ! m"oy-l5d+ busi;s1 z
  9 ! case ( any o!r taxpay]1 may make
  loans t >e n prompt$ 0! ord9>y
  3sid],ns t gov]n ! mak+ ( loans 9 a
  m"oy-l5d+ busi;s4
#ac4 ,9 c]ta9 9du/ries or o3up,ns ": !
  prim>y purpose ( busi;s is n !     #aj
              ,,it-#ddb;,r           c#d
  l5d+ ( m"oy1 x may 2 ! practice or
  cu/om t loans or adv.es >e made 9 !
  ord9>y c\rse (! busi;s4 ,an example
  mi<t 2 ! lumb] 9du/ry ": x has be5 !
  cu/om = manufactur]s or
--------------------------------------#e
  :olesal]s 6make tempor>y adv.es 6lo7]s
  : >e repaya# \ ( deliv]ies4 ,ano!r
  example wd 2 ! case (a self-employ$
  9sur.e ag5t :o adopts ! practice (
  pay+ ! net premiums 6! 9sur] :5 a
  policy is writt5 &( collect+ ! gross
  premium f ! 9sur$ at a lat] date1 ?us
  9 e6ect mak+ a loan 6! 9sur$4 ,adv.es
  made = purposes ( ? k9d t >e directly
  relat$ 6! busi;s (! taxpay] >e
  deducti# "u subp>agraph
  #bj7#a77p77;ii7 :5 !y 2come
  uncollecti# 9 ! ye>4




                                     #aa
       ,prop]ty ,rcvd 9 ,settle;t    a#e
        (a ,debt1 ,loan or ,l5d+
       ,asset 7p>agraphs #ad-ae7
    
#ad4 ,a taxpay] may a3ept prop]ty1 =
  example1 securities or r1l e/ate1 9
  full settle;t (a trade debt or (a loan
  or l5d+ asset made or acquir$ 9 !
  ord9>y c\rse (! busi;s4 ,": s* debt1
  loan or l5d+ asset is (a k9d t wd
  qualify = 3sid],n "u p>agraph
  #bj7#a77p7 &! fair m>ket value (!
  prop]ty rcvd 0! taxpay] at ! date (
  acquisi;n is less ?an ! am.t [+ or
  amortiz$ co/1 ! di6];e is deducti# z a
  bad debt or uncollecti# loan or l5d+
  asset4 ,if ! prop]ty is reta9$ 0!
  taxpay] =a p]iod ( "t :1 9 !
  circum/.es1 9dicates t x 0 held z an
  9ve/;t1 any subsequ5t 4posi;n is
  3sid]$ 6be ! 4posi;n (a capital
  prop]ty & is subject 6! rules relat+
  6capital ga9s & capital losses4 ,h["e1
  if ! prop]ty 0 4pos$ ( 9 circum/.es
  9dicat+ t ! taxpay] did n h !      #ab
              ,,it-#ddb;,r           b#e
  9t5;n ( reta9+ x z an 9ve/;t1 any loss
  on ! 4posi;n1 i4e4 fair m>ket value :5
  acquir$ m9us proce$s ( 4posi;n1 is a
  busi;s loss4 ,on ! o!r h&1 if !
  prop]ty %d r1lize an am.t t 0 grt] ?an
  ! fair m>ket value at ! date (
  acquisi;n1 ! di6];e 3/itutes busi;s
  9come4
#ae4 ,! situ,n describ$ 9 #ad abv m/ 2
  4t+ui%$ f t ": ! prop]ty is acquir$ 0!
  taxpay] z an 9ve/;t &1 9 ex*ange1 !
  taxpay] removes f a3.ts receiva# "p or
  all (a trade debt [+ 6! taxpay] 0!
  v5dor (! prop]ty1 or ! am.t (a loan [+
  or l5d+ asset is reduc$ or ext+ui%$
  5tirely4 ,any subsequ5t 4posi;n (!
  prop]ty s rcvd 9 ex*ange is 3sid]$ 6be
  ! 4posi;n (a capital prop]ty & is
  subject 6! rules relat+ 6capital ga9s
  & capital losses4



                                     #ac
     ,bad ,debts f ,sale ( ,capital   #f
      ,prop]ty 7p>agraphs #af-ag7
    
#af4 ,": a debt t >ose on ! sale (a
  capital prop]ty z def9$ 0p>agraph
  #ed7b7 has 2come a bad debt dur+ !
  ye>1 no am.t is deducti# "u p>agraph
  #bj7#a77p7 9 respect (! debt4 ,!
  provi.ns ( subsec;n #ej7#a7 deem !
  debt 6h be5 4pos$ ( at ! 5d (! ye> &
  any loss on ! debt is a capital loss1
  ) any subsequ5t recov]y 2+ a capital
  ga94 ,9 ? 3nec;n1 see ! curr5t v].n (
  ,,it-#aei1 ,capital ,debts ,e/abli%$
  6be ,bad ,debts = fur!r 9=m,n4
#ag4 ,a taxpay] :o has pur*as$ trade
  receiva#s ( ano!r p]son _c claim a
  deduc;n "u subp>agraph #bj7#a77p77;i7
  = losses 9curr$ on ! r1liz,n ( ^!
  a3.ts except z 4cuss$ 9 #b abv4 ,any
  loss on ! 4posi;n (! pur*as$ a3.ts is
  a capital loss un.s #h abv applies4
  ,if1 "!=e1 at a "picul> tax,n ye>-5d
  subsequ5t 6! pur*ase1 x is det]m9$ t
  any "o (! pur*as$ a3.ts receiva#   #ad
              ,,it-#ddb;,r           a#f
  has 2come uncollecti#1 & an am.t is n
  o!rwise deducti# 9 respect (! debt 2c
  x is a capital prop]ty1 ! provi.ns (
  subsec;n #ej7#a7 apply4

     ,bad ,debts f ,sale ( ,eligi#
           ,capital ,prop]ty
             7p>agraph #ah7
    
#ah4 ,! uncollecti# por;n (a debt >is+
  on ! 4posi;n ( an eligi# capital
  prop]ty af ,june #ag1 #aihg 7o!r ?an
  on a 4posi;n pursuant 6! t]ms ( an
  oblig,n 5t]$ 96in writ+ 2f ,june #ah1
  #aihg7 may 2 subject 6a deduc;n "u
  subsec;n #bj7#d.b74 ,g5],y1 subsec;n
  #bj7#d.b7 provides =a deduc;n ( an
  am.t equal 6?ree-qu>t]s (! uncollecti#
  por;n (! debt less ! deem$ taxa#
  capital ga9 g5]at$ "u subp>agraph
  #ad7#a77a77;v7 on 4posi;n (! eligi#
  capital 9 respect ( : a capital ga9s
  deduc;n 0 claim$ "u sec;n #aaj.f4 ,!
  ref];e 6?ree-qu>t]s abv %d 2       #ae
              ,,it-#ddb;,r           b#f
  *ang$ 6"o-half ":1 9 ! case (a
  corpor,n1 ! eligi# capital prop]ty 0
  4pos$ ( 9 a tax,n ye> 2g9n+ 2f ,july1
  #aihh &1 9 any o!r case1 ! 4posi;n
  o3urr$ 9 a fiscal p]iod 2g9n+ 2f
  #aihh4 ,6! ext5t t ! deduc;n 9 respect
  (! uncollecti# debt is d5i$ 2c x
  relat$ 6a deem$ taxa# capital ga9 9
  respect ( : a deduc;n 0 tak5 "u sec;n
  #aaj.f1 x is deem$ 6be an all[a#
  capital loss4
--------------------------------------#g
      ,recov]ies ( ,bad ,debts or
      ,uncollecti# ,loans or ,l5d+
       ,assets 7p>agraphs #ai-bj7
    
#ai4 ,p>agraph #ab7#a77i7 requires a
  taxpay] 69clude 9 9come any am.t rcvd
  z a recov]y on a bad debt or
  uncollecti# loan or l5d+ asset : !
  taxpay] has deduct$ 9 -put+ 9come 9 a
  previ\s tax,n ye>4 ,norm,y1 ! deduc;n
  9 ! previ\s ye> wd h be5 claim$ "u
  p>agraph #bj7#a77p7 b p>agraph     #af
              ,,it-#ddb;,r           a#g
  #ab7#a77;i7 is n re/rict$ 6s*
  circum/.es4 ,= 9/.e1 p>agraph
  #ab7#a77;i7 is applica# 6a recov]y (
  "p or all (! =m] proce$s ( 4posi;n (a
  deprecia# prop]ty 6! ext5t t ! am.t
  has previ\sly be5 deduct$ pursuant
  6subsec;ns #bj7#d7 or 7#d.a74 ,a
  recov]y on a bad debt or uncollecti#
  loan or l5d+ asset may al 2 a*iev$ 0a
  sale (! debt1 loan or l5d+ asset4 ,=
  example1 ! taxpay] may locate a ?ird
  "py :o [es m"oy 6! debtor & may sell a
  debt 6t p]son1 probably at a 4c.t1 6be
  us$ 0! ?ird "py z an (fset ag/ ! am.t
  [+ 6! debtor4 ,! proce$s rcvd 0!
  taxpay] f ! sale (! debt wd 3/itute a
  bad debt recov]y4
#bj4 ,p>agraph #ab7#a77i7 does n apply
  6recov]ies on bad debts f debts
  acquir$ on ! 4posi;n (a capital
  prop]ty 7o!r ?an deprecia# prop]ty--
  see #ai abv7 or eligi# capital
  prop]ty4 ,any recov]y or 4posi;n (a
  bad debt result+ f ! 4posi;n (a    #ag
              ,,it-#ddb;,r           b#g
  capital prop]ty 7o!r ?an a deprecia#
  prop]ty7 is 9clud$ 9 ! -put,n (
  capital ga9s 9 ! ye> ( recov]y 7see !
  curr5t v].n ( ,,it-#aei74 ,! recov]y
  or 4posi;n (a bad debt result+ f !
  4posi;n (a deprecia# prop]ty 7o!r ?an
  a timb] res\rce prop]ty7 is a capital
  ga9 6! ext5t t ! am.t is n requir$ 6be
  9clud$ 9 9come 0p>agraph #ab7#a77;i74
  ,6! ext5t t ! recov]$ am.t relat$ 6a
  previ\s 9come deduc;n "u subsec;n
  #bj7#d.b7 t result$ f ! 4posi;n (
  eligi# capital prop]ty af ,june #ag1
  #aihg 7see #ah abv71 p>agraph
  #ab7#a77i4#a7 provides t up 6?ree-
  qu>t]s 7"o-half ": ! por;n (! bad debt
  deduct$ 0 "o-half7 (! am.t s recov]$
  is 6be 9clud$ 9 9come4 ,! am.t 9clud$
  9 9come "u p>agraph #ab7#a77i4#a7 is
  propor;nal 6! subsec;n #bj7#d.b7
  deduc;n previ\sly claim$4 ,6! ext5t t
  ?ree-qu>t]s (! recov]$ am.t is n
  9clud$ 9 9come "u p>agraph
  #ab7#a77i4#a7 x is deem$1 "u       #ah
              ,,it-#ddb;,r           c#g
  subsec;n #ci7#aa71 6be a taxa# capital
  ga9 9 ! ye> ( recov]y f ! 4posi;n (a
  capital prop]ty : may 2 subject 6!
  capital ga9s deduc;n "u sec;n #aaj.f4
--------------------------------------#h
      ,prop]ty ,9clud$ 9 ,9v5tory
             7p>agraph #ba7
    
#ba4 ,":1 9 a tax,n ye>1 a taxpay]
  4poses (a prop]ty 9clud$ 9 9v5tory 9
  respect ( : an am.t has previ\sly be5
  deduct$ "u p>agraph #bj7#a77p71 sec;n
  #ab.d requires t any excess (! previ\s
  deduc;ns ov] previ\s recov]ies 9
  respect ( t prop]ty "u p>agraph
  #ab7#a77;i7 m/ 2 9clud$ 9 ! taxpay]'s
  9come = t ye>4 ,z a 3sequ;e1 a taxpay]
  is prev5t$ f claim+ bo? a deduc;n "u
  p>agraph #bj7#a77p7 &a loss on sale (a
  prop]ty t is "p (! taxpay]'s 9v5tory4



                                     #ai
        ,res]ve = ,d\bt;l ,debts     a#h
           7p>agraphs #bb-bg7
    
#bb4 ,p>agraph #bj7#a77l71 : p]mits !
  deduc;n (a res]ve = d\bt;l debts "u
  subp>agraph 7;i7 "!(1 &a res]ve =
  d\bt;l loans or l5d+ assets "u
  subp>agraph 7;ii71 is an excep;n 6!
  g5]al prohibi;n 9 p>agraph #ah7#a77e7
  ag/ ! deduc;n ( res]ves4 ,a res]ve
  claim$ 0a taxpay] "u p>agraph
  #bj7#a77l7 = "o tax,n ye> m/ 2 9clud$
  9 9come 9 ! foll[+ tax,n ye> pursuant
  6p>agraph #ab7#a77d74 ,?us ! res]ve
  claim$ =a tax,n ye> is alw a new
  res]ve &! :ole (! res]ve is subject 6!
  3di;ns specifi$ 9 p>agraph #bj7#a77l71
  & n m]ely any 9cr1se 9 ! res]ve z x
  may appe> 9 ! taxpay]'s a3.ts4 ,! -;ts
  9 #aj 6#ac abv on ! require;ts t !
  taxpay] 2 an 9sur] or ^: ord9>y busi;s
  9cludes ! l5d+ ( m"oy & t ! loan or
  l5d+ asset 0 made or acquir$ 0!
  taxpay] 9 ! ord9>y c\rse (! taxpay]'s
  busi;s ( 9sur.e or ! l5d+ ( m"oy   #bj
              ,,it-#ddb;,r           b#h
  al apply = purposes ( subp>agraph
  #bj7#a77l77;ii74
#bc4 ,! require;ts =a res]ve = d\bt;l
  debts claim$ "u sub-p>agraph
  #bj7#a77l77;i7 >e ! same z ^? specifi$
  9 subp>agraph #bj7#a77p77;i7 = bad
  debts z summ>iz$ 9 #a abv1 except z 6!
  degree ( d\bt 3c]n+ ! collectibil;y (!
  debts4 ,=a debt 6be class$ z a bad
  debt1 "! m/ 2 evid;e t x has 9 fact
  2come uncollecti#4 ,x is su6ici5t1
  h["e1 t "! is r1sona# d\bt ab !
  collectibil;y (a debt = x 6be 9clud$ 9
  a res]ve = d\bt;l debts4 ,_m (! -;ts 9
  #a 6#i abv reg>d+ bad debts1 )
  appropriate modific,ns 6"ns & t]ms z
  requir$1 apply equ,y 6a res]ve =
  d\bt;l debts4
#bd4 ,=a taxpay] 6e/abli% t a res]ve =
  d\bt;l debts is r1sona# 9 am.t x is
--------------------------------------#i
  nec 6id5tify ! debts t >e d\bt;l (
  collec;n hav+ reg>d = s* 9dic,ns z !
  p]iod ( >re>s or default1 !        #ba
              ,,it-#ddb;,r           a#i
  f9ancial /atus & prospects (! debtor1
  ! debtor's pa/ cr$it record bo? )!
  taxpay] &1 if availa#1 ) o!r cr$itors1
  ! value ( any secur;y tak5 & any o!r
  factor t is relevant 9 judg+ !
  debtor's abil;y or will+;s 6pay4 ,once
  hav+ id5tifi$ : debts >e d\bt;l1 !
  maximum am.t (! res]ve %d 2 calculat$
  bas$ on an e/imate z 6:at p]c5tage (!
  d\bt;l debts w probably n 2 collect$4
  ,? calcul,n %d pref]ably 2 bas$ on !
  taxpay]'s pa/ hi/ory ( bad debts1 !
  exp]i;e 9 ! 9du/ry if t 9=m,n is
  availa#1 g5]al & local economic
  3di;ns1 co/s ( collec;n1 etc4 ,?
  proc$ure may result 9 a res]ve 2+
  calculat$ z a p]c5tage (! total am.t
  (! d\bt;l debts or a s]ies ( p]c5tages
  relat+ 6an age-analysis ( ^? debts4
  ,h["e1 a res]ve t is m]ely bas$ on a
  p]c5tage ( all debts1 :e!r d\bt;l or
  n1 a p]c5tage ( gross sales or "s
  simil> calcul,n is n 3sid]$ 6be a
  res]ve det]m9$ on a r1sona#        #bb
              ,,it-#ddb;,r           b#i
  basis z requir$ 0subp>agraph
  #bj7#a77l77;i74 ,h["e1 a res]ve =
  d\bt;l debts t is less ?an ! am.t t cd
  h be5 claim$ 9 a3ord.e )a det]m9,n s*
  z t describ$ abv w 2 view$ z a
  8r1sona#0 am.t4
#be4 ,! fact t prov9cial or o!r legisl,n
  may require a taxpay] 6ma9ta9 a c]ta9
  res]ve 9 respect ( \t/&+ debts is n a
  det]m9+ factor 9 e/abli%+ ! r1sona#;s
  (! am.t (! res]ve = d\bt;l debts
  claim$ "u p>agraph #bj7#a77l74 ,a
  res]ve set up 6provide =a possi#
  reduc;n 9 a3.ts receiva# result+ f !
  return ( m]*&ise sold on cr$it is n a
  res]ve = d\bt;l debts b is a res]ve =a
  3t+5cy1 subject 6! prohibi;n 9
  p>agraph #ah7#a77e74
#bf4 ,al? ! l5g? ( "t t an a3.t is 9
  >re>s is g5],y an important 3sid],n 9
  decid+ :e!r ! a3.t is d\bt;l (
  collec;n1 9 c]ta9 circum/.es a l5g?y
  delay may o3ur )\t ! a3.t 2+ s 3sid]$4
  ,= example1 a =eign debtor may 2   #bc
              ,,it-#ddb;,r           c#i
  =c$ 6delay pay;t 2c ( curr5cy
  re/ric;ns & "! may 2 no r1l d\bt ab !
  ev5tual pay;t (! debt4 ,simil>ly1 a
  def];t ( pay;t =a numb] ( ye>s1 agre$
  ^u 0! cr$itor1 6ov]come a ca% fl[
  pro#m (! debtor1 does n 9 xf 5title !
-------------------------------------#aj
  cr$itor 6claim a deduc;n =a res]ve "u
  p>agraph #bj7#a77l74
#bg4 ,": /ock 9 trade1 9clud+ l&1 is
  sold on an ext5d$ def]r$ pay;t basis 9
  ! circum/.es set \ 9 p>agraph
  #bj7#a77n7 (! ,act1 a res]ve =! pr(it
  ele;t 9 ! am.t receiva# may 2 claim$
  "u t p>agraph4 ,h["e1 a res]ve 9
  respect (! debt xf may / 2 claim$ "u
  p>agraph #bj7#a77l7--,= -;ts on !
  rel,n%ip 2t res]ves "u p>agraphs
  #bj7#a77n7 & #bj7#a77l71 see ! curr5t
  v].ns ( ,,it-#aeb1 ,special ,res]ves--
  ,sale ( ,l&1 & ,,it-#aed1 ,special
  ,res]ves4

                                     #bd
       ,cess,n or ,sale ( ,busi;s   a#aj
           7p>agraphs #bh-bi7
    
#bh4 ,": a taxpay] 7an 9dividual or a
  corpor,n7 on ! a3rual basis c1ses
  6c>ry on a busi;s at a "t :5 "! 7
  debts1 or loans or l5d+ assets1 or ":
  ! busi;s is sold b debts or loans or
  l5d+ assets >e reta9$1 ! provi.ns (!
  ,act relat+ 6a res]ve = d\bt;l debts1
  or a res]ve = d\bt;l loans or l5d+
  assets1 bad debts or uncollecti# loans
  or l5d+ assets & _! recov]ies rema9
  applica#4 ,any loss or ga9 result+ f !
  applic,n ( ^? provi.ns dur+ ! p]iod (
  "t ! debts or loans or l5d+ assets >e
  2+ collect$ is 6be tak5 96a3.t 9 -put+
  ! taxpay]'s 9come =! ye> or ye>s
  9volv$4 ,h["e1 ": a corpor,n is w.d
  up1 debts or loans or l5d+ assets
  2com+ bad or uncollecti# 9 ! f9al ye>
  >e deducti# b a res]ve = d\bt;l debts
  or d\bt;l loans or l5d+ assets1 may n
  2 claim$ = t ye>4 ,if a "pn]%ip is
  4solv$ 9 circum/.es s* t           #be
              ,,it-#ddb;,r          b#aj
  subsec;n #ih7#c7 applies1 ea* "pn]
  2comes 5titl$ 6a deduc;n "u p>agraphs
  #bj7#a77l7 & #bj7#a77p7 9 respect (
  a3.ts receiva#s tak5 ov] directly4
#bi4 ,": a taxpay] sells a busi;s1
  9clud+ debts1 or loans or l5d+ assets1
  any res]ves = d\bt;l debts or d\bt;l
  loans & l5d+ assets all[$ at ! 5d (!
  prec$+ tax,n ye> %d 2 9clud$ 9 9come
  (! curr5t ye>4 ,h["e1 s* res]ves >e n
  all[a# =! ye> 9 : ! busi;s is sold1 =!
  debts or loans & l5d+ assets : 7 sold1
  s9ce !y 7 n [+ 6! taxpay] at ! 5d (!
  ye> af ! sale (! busi;s4









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