Effect Of A BIA Proposal On ABIL Claim

Two recent Tax Court of Canada cases dealt with ABIL timing issues where a proposal is made under the Bankrupty and Insolvency Act.  Both Gaumond v. The Queen (2014 TCC 339) and St.-Hilaire v. The Queen (2014 TCC 336) were decisions under the informal procedure.  While such cases technically have limited precedential value, they are informative and raise ABIL planning issues.

In Gaumond, the taxpayer was the principal shareholder of a CCPC who had advanced over $300,000 to the corporation over a number of years.  In May 2011, the corporation made a proposal under the BIA and at the time of the proposal, the taxpayer's aggregate advances represented 40% of the total unsecured claims of the corporation.  The taxpayer forgave his debt at the request of other creditors who then voted in favour of the proposal in August 2011.  The taxpayer claimed an ABIL in his 2011 return on the basis that his forgiveness of the debt in the proposal process was a disposition.  While