Economic uncertainty produces various challenges for businesses,
some of which are more obvious and urgent than others. Whether or
not arising as part of a court-based process under the Bankruptcy
and Insolvency Act or the Companies' Creditors Arrangement Act,
tax pitfalls arising from situations of financial distress (e.g.,
debt restructuring, cancelling contracts, reducing headcount) are
not always easy to spot, and as with most things, to be forewarned
is to be forearmed. This paper identifies the most important issues
businesses face under the Income Tax Act (Canada) ("ITA")
in the context of a challenging economic environment.
To begin with, it is important to note that times of depressed
asset values may offer opportunities. One of the principal
impediments to transferring assets is the potential taxation of
accrued gains on them. A reduction or even elimination of such
accrued gains due to adverse economic circumstances may allow an
asset transfer that would
