Working on:
2024 T2 (final return up to dissolution date - business closed operations - 2023)
&
2023 T1 (sole shareholder)
Business:
- Went Insolvent 2023 (2023 T2 just filed - loss carryback completed to 2021)
- Will be dissolved 2024 (after corp receives refund from loss carryback)
Two things on BS in coming weeks after things wrap up: - $12k negative RE
- $12k SH loan (credit balance)
Personal tax:
- Personally sold rental property - 2023 (capital gain)
Rather than claim ABIL on T1 and potentially deal with CRA I’ve been told by a very knowledgeable member of this community that it may be wise to claim a Capital Loss on T1 for SH loan bad debt via ITA 50(1)(a) bad debt. This is a deeming rule.
Election potentially would not be necessary if corp was dissolved because SH loan would be disposed of.
- First question is about timing - would it be best to use deeming election now while corp is insolvent or wait for corp dissolution before filing 2023 T1?
Goal: Bad debt loss to apply to 2023 Capital Gain
Please see screenshot below SCH 003:
For accounting (JE):
Debit Shareholder loan $12,000
Credit Other income - Debt forgiveness $12,000
For tax:
- $12,000 - Other Revenue GIFI 8230
(professional fees around $4,200)
Net Income = $12,000 - $4,200 = $7,800
Please see screenshot of SCH 004 (non capital loss at the end of the previous year $5937 will be used against Net income)
I’ve read remaining income amount is multiplied by 50% and included income and if comp is insolvent there’s a corresponding insolvency deduction.
2. Can anyone explain application in T2 of:
(i) income being multiplied by 50%?
(ii) insolvency deduction?