Business Investment Loss Recovery


In this case study, we will look at a recent dispute with the CRA that our client won. Our accountants in Toronto are knowledgeable and trustworthy when it comes to defending our clients’ rights and assisting them in dealing with the CRA. We provide support for a range of tax-related issues, such as filing, audits, and CRA disputes. This problem relates to business investment losses and the CRA’s ability to reimburse them. A buyer, our client, invested funds to purchase a daycare business from a seller. The buyer effectively lost their deposit because the deal fell through. Particularly when the investment was not a small one, this situation can be very stressful. The buyer attempted to claim the balance of the deposit as a business loss on their tax return, but the CRA ultimately rejected this. In this case, the buyer was represented by SDG Accountant, and we essentially dealt with the CRA about what the issue was and how it could be fixed.

The Challenge:

The buyer had poor legal counsel representing him during the business purchase and was advised to make a purchase offer and waive the financing clause. Due to disagreements in their negotiations and the buyer’s perception that the seller had misrepresented information, the buyer decided to cancel the transaction. In an effort to recover their deposit money, the buyer sued the seller in court and paid legal fees; however, a settlement was reached in which the buyer was given only a portion of the money, and the remaining deposit was lost. The Tax Act provides a detailed explanation of this loss in tax terms, along with all of the available deductions and corresponding credits that the buyer can use to reduce their taxes. This loss is known as a business investment loss. A write-off of money lost as a result of a failed business transaction is known as a business investment loss. These can be claimed and fall into one of two categories, net-capital loss or non-capital loss, according to the CRA. The buyer’s loss on their business investment is regarded as a non-capital loss and can be applied to offset any income or gains.

The Solution:

SDG Accountant was hired to represent the buyer in this matter, and we immediately set to work to resolve the issue. The first step was to consult with the client to gather a timeline of events and to collect supporting documents. We then referred to relevant cases that were heard in the Tax Court of Canada to help strengthen the objection, as well as referring to the Tax Act.

The next step was to file an objection with the CRA, setting out the basis for the objection and the evidence supporting the claim. SDG Accountant‘s expertise in tax law and experience in dealing with the CRA was invaluable in this process.

Throughout the process, we maintained open communication with the client and kept them informed of the progress and status of the case. We also worked closely with the CRA officers and agents, engaging in negotiations and discussions to resolve the matter.

The Outcome:

After 1.5 years of hard work and perseverance, we were successful in resolving the dispute with the CRA. The CRA agreed with our objection and recognized the business investment loss for the client, awarding back a substantial tax refund for the allowable business investment loss. The client was happy with receiving back almost $141k in losses which seemed as if it will never be recovered.

Our client was extremely satisfied with the outcome and was pleased with the representation provided by SDG Accountant. The client recognized that our expertise and experience were critical in achieving a positive result.

This case study serves to demonstrate the importance of having experienced representation when dealing with the CRA. The process can be complicated and time-consuming, and it is essential to have knowledgeable and skilled representation to achieve the best outcome.

At SDG Accountant, we are dedicated to fighting for our clients and standing up to the CRA to protect our client’s rights. We have the expertise, experience, and commitment to deliver results for our clients, as demonstrated in this case. If you are facing a dispute with the CRA, do not hesitate to contact us to discuss your situation and how we can assist you.

The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situations.

Sami Ghaith

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