S.P. Bridgeman (613)995-2455
September 17, 1986
Dear Sirs:
This is in reply to your letter of July 23, 1986 wherein you requested our comments on the deductibility of an uncollectable loan as an allowable business investment loss.
Your letter involves an actual case involving the determination of fact which is a function of the District Office. Accordingly, it may be advisable to contact your local District Office in the event you wish to pursue this matter further.
In this regard, the following general comments may provide some help. Pursuant to subparagraph 40(2)(g)(ii) of the Income Tax Act (the "Act"), a taxpayer's loss arising from the disposition of a debt is nil unless the debt had been acquired by the taxpayer for the purpose of gaining or producing income from a business or property. Subsection 50(1) of the Act deems a debt which has become a bad debt in a taxation year to have been disposed of at the end of that year. A loss resulting from that deemed disposition may therefore be deemed to be nil by the provisions of subparagraph 40(2)(g)(ii) of the Act.
Generally, it is the Department's practice to allow a loss on such a loan and not treat it as being nil by virtue of subparagraph 40(2)(g)(ii) of the Act if all the conditions (which are a question of fact), of paragraph 6 of IT-239R2 are satisfied.
We also draw your attention to the case of Duncan v. M.N.R., 1986 DTC 1549, which dealt with the issue of when a debt is established to have become a bad debt in the year.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch