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CRA: tax treatment of Ponzi scheme investments

By Timothy Fitzsimmons

We have previously written about court decisions on the tax results arising from taxpayers’ (failed) investments in Ponzi schemes (see our posts on Roszko v The Queen [2014 TCC 59], Johnson v The Queen [2011 TCC 54] and [2012 FCA 253], Hammill v The Queen [2005 FCA 252] and Orman v Marnat [2012 ONSC 549]).

These decisions raise questions as to how the Canada Revenue Agency (CRA) may assess all aspects of the income earned and losses suffered by the duped investors. For example, while the cases focused on whether the taxpayer was required to report some of the returned funds as income, the tax treatment of losses after the collapse of the fraudulent scheme has not been considered.

The CRA has now provided some guidance on how it will administer the Income Tax Act (Canada) in respect of the income and losses arising from Ponzi schemes…

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