Deduct a bad debt or claim a loss on shares of a bankrupt company
Debts established to be bad debts and shares of bankrupt corporations
Section 50 allows a taxpayer to elect to treat a business or property debt that has gone bad — or shares of a corporation that has become bankrupt or insolvent — as having been disposed of at nil proceeds, crystallizing an allowable capital loss.
Plain-language explanation
Section 50 provides relief when a debt you are owed becomes uncollectible or when shares you own become worthless due to corporate insolvency.
Bad debt election (s.50(1)(a)): If you have a debt owing to you (a loan you made, not a trade receivable) that has become "bad" (uncollectible), you can elect to treat the debt as having been disposed of for proceeds of $nil. This creates a capital loss equal to the ACB of the debt. The election must be made in the year the debt is determined to be bad.
Bankrupt or insolvent corporation (s.50(1)(b)): If you own shares of a corporation that: - is bankrupt (s.50(1)(b)(i)), or - is insolvent and has ceased — or almost ceased — to carry on business, and there is no reasonable expectation of recovery (s.50(1)(b)(ii)–(iii)),
you can elect to treat the shares as having been disposed of at $nil, triggering a capital loss.
Shares and ABIL: If the shares are shares of a Small Business Corporation (SBC), the capital loss may qualify as an Allowable Business Investment Loss (ABIL) under s.38(c) — deductible against any income source, not just capital gains.
Reacquisition fiction: After the election, you are deemed to have reacquired the debt or shares at $nil ACB. If the debt is later collected or the shares recover in value, the subsequent recovery is a capital gain.
Example
Amara lent $30,000 to a friend's startup. The company fails and becomes bankrupt in 2026. Amara makes the s.50(1)(a) election. She has a capital loss of $30,000 (ACB $30,000 minus proceeds $nil). If the shares were of a qualifying SBC, she could have an ABIL — deductible against employment or other income, not just capital gains.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Rules clarified to ensure that a s.50 election cannot be made for amounts included as employment income or business income under other provisions — preventing double deductions for amounts already written off in a business context.
Common questions
What is an Allowable Business Investment Loss (ABIL)? +
An ABIL arises when you dispose of shares or debt of a Small Business Corporation (SBC — a CCPC using its assets primarily in an active business in Canada). An ABIL is 50% of your business investment loss and can be deducted against any income, not just capital gains. Unused ABILs become net capital losses after seven years.
Can I claim a bad debt loss on a trade receivable from my business? +
Trade receivables (money owed to you for goods/services sold in your business) are deducted as a bad debt expense under s.20(1)(p), not under s.50. Section 50 applies to capital property (loans and shares). The distinction matters because s.20(1)(p) deductions flow through business income, not as capital losses.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 50. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.