An individual owned an interest-bearing debt of a wholly-owned corporation operating a restaurant which in 20X1 sued the franchisor at the same time as closing the restaurant. If, notwithstanding good prospects of success in the action, it is dismissed by the court in 20X6, can a business investment loss (“BIL”) then be claimed?
CRA noted that, if the capital loss was triggered under s. 50(1), the recognition of a BIL would require that the corporation qualify as a small business corporation (an “SBC”) - which would entail a requirement for instance that it have been carrying on a Canadian active business at some point within the preceding 12 months. CRA then stated:
Following [Poulin], we accept … that an amount for damages may be deducted in a year in which a taxpayer no longer carries on business, since the taxpayer is presumed not to have ceased carrying on business for as long as the taxpayer is engaged in carrying through on acts committed to by the taxpayer in the course of the business, even if, at the time the amount is deducted, the taxpayer is no longer transacting and can no longer attend to the taxpayer’s customers.