A section 22 election is a joint filing under ITA s. 22 that lets the vendor and purchaser of a business's accounts receivable, sold as part of an asset deal, treat any discount below face value as a fully deductible business loss for the vendor and as a debt the purchaser can later write off if it actually goes bad.
ITA s. 22(1) applies where a vendor has sold “all or substantially all the property used in carrying on the business, including the debts that have been or will be included in computing the person’s income… to a purchaser who proposes to continue the business,” and both sides “have executed jointly an election in prescribed form.” The effect: the vendor deducts the shortfall between the face value of the receivables and what the purchaser actually paid for them, and the purchaser includes that same shortfall in income but is then treated, for bad-debt purposes, as though the receivables had already been in its own income — letting it claim a bad-debt deduction later if a receivable it bought at a discount genuinely proves uncollectible.
The election matters only on an asset sale. In a share sale the receivables never change hands — they stay inside the target corporation — so there is nothing for s. 22 to apply to. Treadstone Law’s guidance on Ontario asset sales frames the underlying problem the election solves: “receivables are almost never worth exactly their face value by the time a sale closes, and the buyer and seller need a way to treat the shortfall sensibly for tax purposes.” Without the election, a purchaser that buys a discounted receivable at less than face value generally has no statutory basis to claim a loss if that receivable later goes bad, because it never reported the receivable’s face value in income in the first place — the election is what manufactures that basis.
A vendor sells its accounts receivable book — $310,000 face value, of which it estimates $22,000 is realistically uncollectible — to the buyer for $288,000 as part of an asset deal. With a joint s. 22 election: the vendor deducts the $22,000 shortfall as a fully deductible business loss rather than a capital loss restricted to offsetting capital gains, and the buyer includes that same $22,000 in income for the year but can now claim its own bad-debt deduction under s. 20(1)(p) on any of it that genuinely proves uncollectible — a write-off it would not otherwise have any ITA basis to claim.
See also: Section 167 GST/HST election · Purchase price allocation · Recapture of capital cost allowance.
A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email as each measure is published.
