A husband who is an employee but not a shareholder of Opco cannot claim an ABIL for amounts loaned interest-free to Opco (even though his wife is the sole shareholder of Opco). The husband’s employment income does not mean that the loan was advanced for the purposes of gaining or producing income.
A taxpayer who claims an ABIL must show that the debt went bad in the year for which the ABIL was claimed. The taxpayer cannot use hindsight for this purpose. The determination time is at the end of the relevant year.
Rich v R, [2003] 3 FCR 493, 2003 FCA 38, is the leading authority in assessing whether a taxpayer can claim an ABIL.
From Marlene Cepparo’s summary of Coveley v R, 2014 FCA 281, in “No ABIL for Loans to Canco”, Canadian Tax Highlights 23:2 (February, 2015).
Update 2015 05 05. The TCC found that the husband had not advanced funds for the purposes of gaining or producing income, but the FCA specifically stated that addressing that issue was not necessary to dispose of the appeal before it.
