Dear Sirs:
Re: Bad Debts
This is in reply to your letter of June 11, 1991 concerning the year in which a bad debt may be claimed for income tax purposes.
24(1)
It is a question of fact as to when a debt is established to be bad which can only be determined upon examination of all the relevant facts. As stated in paragraph 10 of Interpretation Bulletin IT-159R3, a debt is generally not considered to be bad until the creditor has exhausted all legal means of collecting it. In our view there is a presumption that a debt is not bad at the time the creditor extends the credit. Accordingly, the corporate taxpayer would not be able to claim a bad debt in the year of the disposition of the depreciable property based only on his suspicions about the ability to collect on the mortgage taken back
Since it is apparent from our telephone conversation that your question relates to a particular taxpayer, we recommend that you contact the District Taxation Office, providing the name of the taxpayer and full particulars of the facts for their views on this matter.
We trust our comments are of assistance to you and regret that our reply could not be more definitive.
Yours truly,
For DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch