By Josiah Edwards Davis
Taxpayers victimized by fraudulent investment schemes (“Fraudulent Investment Schemes”) may find some relief by deducting their losses. Recent Canada Revenue Agency (“CRA”) administrative statements provide welcome guidance to taxpayers whose investments have been defrauded in a financial scam.
The CRA has ruled consistently that losses incurred from Fraudulent Investment Schemes may be deducted from a taxpayer’s ordinary income or capital gains. The taxpayer must have made the investment without the knowledge that it was a Fraudulent Investment Scheme. If so, the taxpayer must then determine whether the loss was a result of carrying on a business or from the disposition of an investment held on capital account.