After the appointment of a trustee, two subsidiary corporations of the taxpayer corporation filed notices of intention under s. 50.4 of the Bankruptcy and Insolvency Act ("BIA") to make a proposal, and renewed the notices. However, the trustee failed to file a proposal with the Official Receiver, and the notice was not further renewed. The Directorate found that the taxpayer could have elected to recognize a capital loss under s. 50(1)(b)(i) at the time of the filing of the notices of intention given that, as a result of the failure to timely file a proposal, s. 50.4(8) of the BIA deemed the subsidiaries to have made an assignment at such time of filing.
The Directorate noted that provided the four conditions in s. 50(1)(b)(iii) “are still satisfied at the end of a subsequent taxation year, there is nothing to prevent the taxpayer from making the election in that subsequent year instead of in the initial year. However, the Directorate noted that, in contrast, under s. 50(1)(b)(i) “if the condition in subparagraph 50(1)(b)(i) is satisfied in a year and the taxpayer does not elect to recognize a deemed disposition for that year, it will not, in our view, be able to make the election in a subsequent year” – so that no loss could be recognized because no election had been made until the subsequent year. Furthermore:
Given that the legal status of a taxpayer differs depending on whether it is bankrupt or merely insolvent … the provisions of subparagraph 50(1)(b)(iii) are not intended to cover the situation of a taxpayer who has become bankrupt.