This is a helpful case because it repeats the tests for “when a debt owing to the taxpayer had become bad” so that the taxpayer could claim a capital loss. Paris J. relied on the FCA decision Rich v The Queen2003 FCA 38 (CanLII), where Rothstein J. (now on the SCC) said:
“[12 ] The assessment of whether a debt is bad is one based upon the facts at a particular point in time, …
“[13] I would summarize factors that I think usually should be taken into account in determining whether a debt has become bad as:
“1. the history and age of the debt;
“2. the financial position of the debtor, its revenues and expenses, whether it is earning income or incurring losses, its cash flow and its assets, liabilities and liquidity;
“3. changes in total sales as compared with prior years;
“4. the debtor’s cash, accounts receivable and other current assets at the relevant time and as compared with prior years;
“5. the debtor’s accounts payable and other current liabilities at the relevant time and as compared with prior years;
“6. the general business conditions in the country, the community of the debtor, and in the debtor’s line of business; and
“7. the past experience of the taxpayer with writing off bad debts.
“This list is not exhaustive and, in different circumstances, one factor or another may be more important.
“[14] While future prospects of the debtor company may be relevant in some cases, the predominant considerations would normally be past and present. If there is some evidence of an event that will probably occur in the future that would suggest that the debt is collectible on the happening of the event, the future event should be considered. If future considerations are only speculative, they would not be material in an assessment of whether a past due debt is collectible.
“[15] Nor is it necessary for a creditor to exhaust all possible recourses of collection. All that is required is an honest and reasonable assessment. Indeed, should a bad debt subsequently be collected in whole or in part, the amount collected is taken into income in the year it is received.”
(Quoted in Fisher at para. 41.)