Ten years ago, Mr. Chu invested in Able Inc., a Canadian private company which meets the...

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Ten years ago, Mr. Chu invested in Able Inc., a Canadian private company which meets the definition of a "small business corporation". He invested $100,000 in common shares and made an unsecured loan of $60,000 with an interest rate of 5%. He has been receiving interest on this loan until recently. He has just found out that due to the bankruptcy of a significant customer and the loss of the related accounts receivable, Able Inc. is also in significant financial difficulty. Mr. Chu has come to you for tax advice. (1) At this point, can Mr. Chu claim a loss on either the loan or the shares without disposing shares or debt? this (2) He has someone who is interested in buying the shares for $10,000 and the debt for $6,000. What are the tax consequences if he does this? Ten years ago, Mr. Chu invested in Able Inc., a Canadian private company which meets the definition of a "small business corporation". He invested $100,000 in common shares and made an unsecured loan of $60,000 with an interest rate of 5%. He has been receiving interest on this loan until recently. He has just found out that due to the bankruptcy of a significant customer and the loss of the related accounts receivable, Able Inc. is also in significant financial difficulty. Mr. Chu has come to you for tax advice. (1) At this point, can Mr. Chu claim a loss on either the loan or the shares without disposing shares or debt? this (2) He has someone who is interested in buying the shares for $10,000 and the debt for $6,000. What are the tax consequences if he does this?

Answer rating: 100% (QA)

1 Mr Chu may be able to claim a loss on either the loan or the shares without disposing of the shares or debt depending on the specific tax laws and regulations in his jurisdiction Generally in Canada ... View the full answer