# Defaults on Notes and CRA requirements



## Free (Dec 4, 2016)

Hi Everyone

I am investing a little bit of money into notes through the lendingloop.ca platform. I'm diversifying by investing no more then $50 per company which will mean I will be invested in many high risk/reward notes. I fully expect some defaults because these are small business loans with zero collateral. When a borrower defaults I think I am eligible to claim a capital loss on my income taxes. However what are the CRA requirement for backup documentation to support the capital loss claim? Will the loss be calculated for me on a T5 or some other mandatory form?

I searched this forum, did a Google search and checked the CRA site and can't really seem to get a clear answer for my question.


Thanks


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## Spudd (Oct 11, 2011)

Lending Loop says the following:

After the end of each calendar year, Lending Loop will provide you with a
summary of all of your income (and losses) earned through the platform
for you to include on your tax return. It is your responsibility to report this
information to CRA.
While you are lending with partners, you are taxed on your share of the
profits of the loan as an individual. As an individual, interest income is taxed
at your marginal rate. Should one of your loans default, any lost principal
would be considered a capital loss for tax purposes.
We recommend that you consult with your personal accountant if you
are unsure about how to file and to find out how lending will impact your
personal tax situation.

It's not 100% clear here whether they include capital loss documentation in the summary of income/losses that they provide. Probably to be on the safe side, take a screenshot of the loan when you first set it up, and then once the borrower defaults, take a screenshot of that - the 2 screenshots together should be sufficient proof of the capital loss. Once you've gotten your first summary report from Lending Loop you'll know whether this screenshot step is really necessary or not.


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## Free (Dec 4, 2016)

@Spudd

Thanks for the reply. I know that the platform provider is required to provide lenders with a T5 which shows all interest income earned for the tax year. I just have to include those amounts on my return which is easy. The part I don't understand is what criteria the CRA has for a default to be considered a capital loss. For example if they just get behind on payments then they have sort of defaulted but it's not really a capital loss. Do we lenders need to prove that the debt it uncollectible somehow? It's something I think I need to research more.


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## naysmitj (Sep 16, 2014)

I looked at Lending Loop's website and I was intrigued at looking into the lending opportunities until I saw that they wanted my name, birth date and social insurance number. Being in the IT industry, I just do not ever put that info out there. Hope it works out for you.


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## OhGreatGuru (May 24, 2009)

If they are providing you with a T5, they pretty much require this information, just like any other financial institution. If you have doubts about their information security, you should have doubts about doing business with them at all, not just supplying your personal data.


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