keep this website free for you. TaxTips.ca does
not research or endorse any product or service appearing in
ads on this site.
Before making a major financial decision you
should consult a qualified professional.
You may have an investment in some shares or debt which have become worthless, but
you can't sell them because the security is no longer listed on a stock
market. There is a section of the Income Tax Act that allows you to
claim a capital loss on these shares or debt even though you cannot sell them.
This section also applies to debt owed by a corporation to a taxpayer.
Subsection 50(1) deems a taxpayer to have disposed of a debt or a share of
a corporation at the end of a taxation year for nil proceeds and to have
reacquired it immediately thereafter at a cost of nil if:
in the case of a debt (other than a debt from the sale of personal
use property), the debt is owing to the taxpayer at the end of the
taxation year and it is established by the taxpayer to have become a
bad debt in the year; and
in the case of a share (other than a share received as consideration
from the sale of personal use property), the taxpayer owns the share
of the corporation at the end of the taxation year and the
has become a bankrupt (as defined by the Bankruptcy and
Insolvency Act) in the year;
is a corporation referred to in section 6 of the Winding-up Act
that was insolvent (within the meaning of that Act) and for which
a winding-up order under that Act was made in the year; or
at the end of the year, is insolvent, and neither the
corporation, nor a corporation it controls, carries on
business. Also, at that time, the share has a fair market
value of nil and it is reasonable to expect that the corporation
will be dissolved or wound-up and will not commence to carry on
Because of the s. 50(1) election, the superficial
loss rules do not apply, even though you are deemed to have
immediately reacquired the shares.
A cease trade order in itself will not qualify shares for a s. 50(1)
disposal election. The above conditions must be satisfied.
If s. 50(1) applies, you are deemed to have disposed of the shares for
nil proceeds, and can elect to claim a capital
loss for those shares, for the amount that you paid for them.
Unless the loss qualifies as a business investment loss (see below), you
will do this by recording the deemed disposal of shares on Schedule 3 of
your tax return, as if you had actually sold the shares or debt for nil
proceeds. Disposal of shares are recorded in part 3 of Schedule 3,
and disposal of bonds or other corporate debt are recorded in part 5 of
You must also file an election in writing with your tax return, as
indicated in T4037 Capital Gains. If you file your tax return
electronically, send the letter separately to Canada Revenue Agency (CRA),
indicating that it is in support of your electronically filed tax
return. The letter should state that you want subsection 50(1) of
the Income Tax Act to apply to the particular transaction. Include
your full name and address, as well as your social insurance number, and
ensure that you sign the letter. Make sure you have documentation
which which shows that the shares or debt qualify as a s. 50(1) disposal,
which you will be required to provide if requested by CRA.
The advantage of this is that the taxpayer can
write off the investment while still retaining ownership.
The corporation may "revive", and be worth something in the future.
Any recovery of amounts previously deducted would have to be
included as capital gains.
There may be other ways to dispose of the investment to realize a
loss. You could give them to a family member, other than a
spouse. You could contact your financial institution or brokerage to
see if they have a method for you to dispose of delisted shares, or shares
which are worthless or near worthless. They may purchase the
investment from you for a nominal fee, which will provide you with a
transaction receipt as proof of sale. Using either of these methods,
of course, you will not retain ownership.
Business Investment Loss
If the debt is owed by a Canadian-controlled private corporation
(CCPC), or the share is a share of a small business corporation (SBC), the
loss will be considered a business investment loss, and can be deducted
against other income, not just against capital gains. See our
article on business