Final T2 (Debt forgiveness)

Working on a final T2 (up to date of dissolution)

  1. SH forgive corp $12k (unpaid SH loan balance)
  2. CORP will pay $4.2k for professional fees

Accounting:

JE:

Debit Shareholder loan $12,000

Credit Other income - Debt forgiveness $12,000

Tax:

  • $12,000 - Other Revenue GIFI 8230

STEPS ON T2

  1. Deduct $12,000 SCH 001

  1. Use non capital loss available under Section 80 (box 140) SCH 004: $5937

  1. Remaining forgiven amount multiplied by 50% and added to SCH 001

Calculation:

Debt Forgiven: $12,000 - Non-capital losses from PY: $5,937

=$6,063 x 50%

=$3,031.50

4. Claim insolvency deduction SCH 001

Net income (loss) for income tax purposes ($4,200.00)

Is this how others would handle this tax situation?