Hi:
I have a client, planning on closing his business, with substantial shareholder loan that likely not getting back after dissolving his company. Does anyone have experience with ABIL claim and know what support document CRA will ask for to support?
Thanks
Thanks Helga. After filing the election under subsection 50(1), do you know what kind of support documents CRA generally will ask for?
The blue above is a LINK to https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/support-the-claim/lcs-15417.html which lists what you will require.
I am more interested to find out what type of support document CRA will ask to substantiated the losses (bad debt invested in the corporation). Just the S100 and S125 from T2, or compilated finance statement or reviewed financial statement? etc…
Thanks
My experience is that cra will ask for proof of the investments (cancelled cheques) and copies of journal entries with backup of these entries.
Agreed; they want proof first that cash WAS invested - and typically ask for a history of the shareholder loan account.
My plan would be to claim the ABIL, warn the client of the chance it will be disallowed, and wait for CRA to call. I have never been asked for backup. Never. Mind you, the last one that comes to mind was around $5,000, so maybe it was under the radar. I’m just saying, don’t get your drawers in a knot for nothing.
Thanks Guy, I was concerning that CRA might asked for a reviewed financial statement plus all the journal entries to back up,
Although you don’t need to forward the documentation with the return, you can be 100% sure that if it is a substantial amount they will be looking for all the documentation that proves he loaned that much to the company and that it hasn’t been repaid.
Every ABIL claim I have ever made has been subject to review (with the exception of one little one), so I would tell the client to plan for it & assemble any relevant info.
I have never been asked to provide formal financials, internal statements w/ ledger detail have been sufficient. Along with the details/proof of where the money came from, I would ask the client to prepare an explanation in plain English of how/why this non-arms length debt has become now become uncollectible.
Also, if borrowed money was used I would absolutely slip that in along with reference to any ongoing interest expense (“disappearing source”). I have one instance where the interest expense is ongoing more than a decade after the loss…
Yeah, it’s a huge amount, so I expect a lot of documents will be asked from CRA. Just wasn’t sure if there is a standard listing that CRA uses internally. After talking to some other practitioners, sounds like it’s case by case,
I submitted an adjustment request re: an ABIL claim around the time topic this was posted (bankruptcy & subsequent reorg of a fairly large CCPC - shares cancelled/nil proceeds). In November we heard back from CRA with a very lengthy list of requested doc’s (much of what they asked for & received isn’t on Helga’s linked list). Sent everything we could gather and now CRA is proposing to deny it unless we can prove my client still owned the shares on the date they were cancelled.
We propose to deny your request to add a business investment loss to your 2020 tax return in full at this time.
> We did not receive any documentation from you to support that you still had ownership of the common shares of Green Relief Inc. at the time that they were cancelled, such as a copy of the corporation’s share register.
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> Subsection 230(1) of the Income Tax Act states that records have to be kept in such a way that we can determine the taxes payable from them. Unless proper records and receipts are maintained to support claims, we will not allow or we will reduce the claims to an amount the records support
I’ve been in touch with PwC and they have indicated they don’t have this info - where would one find this, or do I just plan to object when it’s denied - am I missing something??
What did the client receive in exchange for the cheque he wrote to purchase the shares in the company?
Did he receive a share certificate or any type of ownership documentation?
The lawyer would have the corporate share register.
Did he receive any type of official correspondence from the lawyer, the company, the liquidator to suggest his holdings were wiped out?
Yes, I have submitted: the share certificates & subscription agreement; copies of the bank drafts used to purchase; initial NOI as well as the Notice to Shareholders Information for Shareholders | PwC Canada
I’d think the Notice constitutes official correspondence (?). There were around 700 affected shareholders including my husband, who’s ABIL claim was reviewed and allowed (but his review list was reasonable in scope).
Issue is: the original company no longer exists at all due to the outcome of the bankruptcy proceedings…