A workers' cooperative sold all the assets of its active business to a purchaser in consideration for preferred shares of the purchaser, with the purchaser subsequently becoming insolvent so that the shares and debt of the members in the cooperative also became worthless.
Regarding whether the members could claim an allowable business investment loss respecting their shares in the cooperative pursuant to s. 50(1), the Directorate noted that such shares could qualify as shares of a Canadian-controlled private corporation, given that a share in a cooperative corporation as defined in s. 136(2) was a share within the meaning of s. 248(1) and that such a cooperative corporation was deemed for purposes of s. 39(1)(c) to be a private corporation by virtue of s. 136(1).
Given the 12-month look-back rule in the small business corporation (SBC) definition in s. 248(1), that the members' shares ceased to be shares of an SBC at the time of the sale to the purchaser, and that the s. 50(1) claim could only be made as at a year-end, the members could only claim an allowable business investment loss in respect of their shares as at the year-end of the cooperative that did not follow the sale by more than 12 months.
Regarding their debts of the cooperative, since it was neither bankrupt nor had been wound up, making such a claim again turned on their s. 50(1) claim being made as at a time while the cooperative was still an SBC, which once again referred to the year-end that did not follow the sale by more than 12 months. Finally, a loss on such debt would be denied under s. 40(2)(g)(ii), as to which the Directorate referred to its position in IT-239R2, para. 6.