Income Tax Act — I-3.3 50
Debts established to be bad debts and shares of bankrupt corporation 50 (1) For the purposes of this Subdivision, where (a) a debt owing to a taxpayer at the end of a taxation year (other than a debt owing to the taxpayer in respect of the disposition of personal-use property) is established by the taxpayer to have become a bad debt in the year, or (b) a share (other than a share received by a taxpayer as consideration in respect of the disposition of personal-use property) of the capital stock of a corporation is owned by the taxpayer at the end of a taxation year and (i) the corporation has during the year become a bankrupt, (ii) the corporation is a corporation referred to in section 6 of the Winding-up and Restructuring Act that is insolvent (within the meaning of that Act) and in respect of which a winding-up order under that Act has been made in the year, or (iii) at the end of the year, (A) the corporation is insolvent, (B) neither the corporation nor a corporation controlled by it carries on business, (C) the fair market value of the share is nil, and (D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business and the taxpayer elects in the taxpayer’s return of income for the year to have this subsection apply in respect of the debt or the share, as the case may be, the taxpayer shall be deemed to have disposed of the debt or the share, as the case may be, at the end of the year for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil. Idem (1.1) Where (a) a taxpayer is deemed because of subparagraph 50(1)(b)(iii) to have disposed of a share of the capital stock of a corporation at the end of a taxation year, and (b) the taxpayer or a person with whom the taxpayer is not dealing at arm’s length owns the share at the earliest time, during the 24-month period immediately following the disposition, that the corporation or a corporation controlled by it carries on business, the taxpayer or the person, as the case may be, shall be deemed to have disposed of the share at that earliest time for proceeds of disposition equal to its adjusted cost base to the taxpayer determined immediately before the time of the disposition referred to in paragraph 50(1.1)(a) and to have reacquired it immediately after that earliest time at a cost equal to those proceeds. Where debt a personal-use property (2) Where at the end of a taxation year a debt that is a personal-use property of a taxpayer is owing to the taxpayer by a person with whom the taxpayer deals at arm’s length and is established by the taxpayer to have become a bad debt in the year, (a) the taxpayer shall be deemed to have disposed of it at the end of the year for proceeds equal to the amount, if any, by which (i) its adjusted cost base to the taxpayer immediately before the end of the year exceeds (ii) the amount of the taxpayer’s gain, if any, from the disposition of the personal-use property the proceeds of disposition of which included the debt; and (b) the taxpayer shall be deemed to have reacquired the debt immediately after the end of the year at a cost equal to the amount of the proceeds determined under paragraph 50(2)(a). Disposal of R.H.O.S.P. properties (3) Each trust that was at the end of 1985 governed by a registered home ownership savings plan (within the meaning assigned by paragraph 146.2(1)(h) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1985 taxation year) shall be deemed to have disposed, immediately before 1986, of each property it holds at that time for proceeds of disposition equal to the fair market value of the property at that time and to have reacquired it immediately after 1985 at a cost equal to that fair market value. [NOTE: Application provisions are not included in the consolidated text; see relevant amending Acts and regulations.] R.S., 1985, c. 1 (5th Supp