Regarding the consequences of the sale of a business of a financial securities advisor who provided life insurance policies and other products to clients, CRA stated:
If the vendor and the purchaser jointly elect under subsection 22(1):
- the vendor can deduct the difference between the face value of the receivables sold and the consideration the vendor receives from the purchaser in computing the vendor’s income,
- The purchaser must include this difference in its income and will be able to treat the receivables as if they had arisen while the purchaser owned the business. In this way, the purchaser will be able to deduct amounts in respect of bad and doubtful debts.
If an election under subsection 22(1) is not filed, the sale of the receivables will be recognized as a sale of capital property, so that the vendor's losses, and subsequently the purchaser's, will be capital losses.