Form matters for an ABIL

In Dias v R, 2021 TCC 85, the taxpayers unsuccessfully argued that loans that appeared to be to a numbered company had actually been made to corporations that might have been small business corporations (the numbered company was not). The numbered company, the taxpayers claimed, was a “conduit” for the true borrower (the purported small business corporations). The Tax Court wasn’t buying it.

What does this decision teach us? It teaches us that to claim an ABIL, it makes abundant sense to loan the funds directly to the active corporation. In situations where a conduit must be used, it is imperative that the parties (1) document who the ultimate recipient of the loan is, (2) establish that the funds did in fact end up where the parties intended, and (3) remain consistent. It is not wise to tell one story at audit and then change that story, because this change may suggest retroactive tax planning.

It is worth noting that the conduit may be a bare trust, and that the February 4, 2022 draft legislation proposes additional reporting requirements for bare trusts. Using a conduit therefore may simply increase the compliance burden. Loaning the funds directly to the active corporation may be the better choice.

Amit Ummat “When an ABIL Is Claimed, Form Matters: Dias v. The Queen” 22:2 Tax for the Owner-Manager (April 2022)

Print Friendly, PDF & Email