Our guest blogger, who wants to remain anonymous, writes:
I am a master procrastinator, so well-practiced that the date of my eventual shuffle off this mortal coil is continually being extended.
I am an accountant by training (if not by disposition) and I prepare the family taxes. Usually I prepare what I call the first draft at the beginning of March, once the majority of the slips are in, then sit and wait to ensure I have all the income declared and have taken advantage of all the generous opportunities for tax minimization our bureaucrats have provided. A few years ago my wife disposed of some stock in order to fund the business and faced a daunting multiple six figure tax bill. I knew something could be done, but what? So I waited, and waited.
As time wore on I tried to avoid sleep because my nightmares consisted of giant, suit wearing, six legged ants from the CRA. I was getting punchy.
“Just file the damned thing”was the opinion of my other half, who was risking a rather large penalty if I did not file on time; but still I felt unsure. I consulted my handy-dandy tax act that I keep on my bedside table (accountants have needs, “… read me about roll-over provisions…. Section 69 ‘ inadequate consideration…”) to see if I could come up with my brilliant idea.
Bingo! The income Tax Act has a special section for loss provisions on loans to Canadian Corporations ‘ the allowable business investment loss. Unlike ordinary allowable capital losses, an allowable business investment loss for a taxation year may be deducted from all sources of income for that year. To me, this was more exciting than reading Penthouse Forum.
Thank you Section 50, where the holder of debt in a Canadian corporation can deem a disposition of that debt at nil proceeds immediately prior to the end of the year and reacquire that debt at a cost of nil immediately after the beginning of the following year. I carefully counted the commas and re-read the section for the umpteenth time. The key word here is “deemed”‘ all we needed to do was to declare that the debt was deemed disposed of under the provisions of the section of the act to be able to write off a truck load of money. “To the Bat Poles!”I rushed downstairs.
I documented the flow of funds into the corporation, including dates and amounts. I identified the source of those funds and provided the company balance sheet indicating that the company did not have the capacity to repay the funds advanced and was, in essence, insolvent. I drafted a document declaring the loss as fitting under this special rule, identifying the chapter, section and subsection. Audit worthy.
My wife came down to breakfast to find me sitting at the table wearing my bath robe and a large blue wizard hat which we had picked up in Disney Land.
“Will you get them in on time?”
“Already filed on line; here are the receipts.”
“Dare I ask?”she asked anyway.
“You get a refund.”I replied.
“You have got to be kidding!”
It was April 30th, 8:30 AM ‘ I still had 15 ½ hours to go.
Thank you to our anonymous accountant for sharing your story!