If at the end of a year, you own shares of a bankrupt or insolvent corporation, you may be able to realize a capital loss on such shares. You may deduct this capital loss but only to the extent you have realized capital gains on other property.

The capital loss, calculated as a disposition of such shares for nil proceeds, is realized at the end of the year if you elect to do so in your tax return for the year and:

1. The corporation has during the year become a bankrupt, or
2. The corporation is insolvent and a winding-up order under the Winding-up and Restructuring Act has been made in the year, or
3. At the end of the year
   • The corporation is insolvent, and
   • Neither the corporation nor a corporation controlled by it carries on business, and
   • The fair market value of the share is nil, and
   • It is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business.

As this loss may also be an allowable business investment loss that is deductible not only against capital gains but against other income, you may wish to consult a Chartered Accountant before reporting such a loss on your tax return.

Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.