Note: this article is general guidance only and is not tax advice. Always confirm your specific situation with an accountant or tax adviser, or with the Canada Revenue Agency.
Selling a debt for less than its face value has tax consequences — generally reasonable and often favourable for the seller. Here are the key points in Canada.
Businesses: the loss is generally deductible
If you sell a CA$10,000 invoice for CA$6,000, you crystallise a CA$4,000 loss. For a trade receivable that was previously included in income, that loss is generally deductible against business income, since it arises from a real, arm's-length disposal.
A sale to an independent third party objectively documents the impairment of the receivable — often more robust before the Canada Revenue Agency than an internal bad-debt write-down.
The GST/HST bad debt adjustment
If you remitted GST/HST on the original invoice but never collected it, you may be entitled to a bad debt adjustment to recover the tax you already accounted for. The timing matters: the adjustment is tied to writing off the debt in your books, so coordinate it with the sale. Once the receivable is assigned, the tax treatment can change, so assess the adjustment carefully. See the Canada Revenue Agency for the current rules on bad debt adjustments.
Is the assignment itself taxable?
The transfer of a debt is generally treated as a financial service, so the buyer does not usually pay GST/HST on acquiring the receivable itself. Your adviser can confirm how this applies to your particular transaction.
Individuals
For an individual selling a private receivable, the difference between the sale price and the amount lent may be treated as a capital loss, and rules on bad debts and loans to non-arm's-length parties can apply. Keep the loan agreement and the assignment as evidence.
For the buyer
The buyer is generally taxed when they collect more than they paid: that difference is income or gain. Until they collect, there is no taxable profit.
How Debtalia fits in
Debtalia is a marketplace that connects sellers with buyers directly — it does not buy your debt and takes no commission on the sale. Listings are anonymous, and you keep full documentation of the assignment for your tax records.
Practical summary
Selling an uncollectable debt not only brings in cash: it lets you crystallise the loss and close the file. Coordinate the timing with your adviser to optimise the deductibility and any GST/HST adjustment for your situation.
