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Allowable Business Investment Loss (ABIL) : Tax tips

Invested money with a private Canadian corporation?

If you have invested money with a private Canadian corporation carrying on an active business, including your own corporation, and the debt becomes uncollectible you can deduct 50% of the loss as an allowable business investment loss (ABIL) in computing your personal Canadian income tax liability.



An allowable business investment loss(ABIL)

An allowable business investment loss (ABIL) may be claimed as a Canadian income tax deduction on a non-interest bearing loan to a Canadian controlled private corporation if there are other reasons for the loan such as dividends or management fees. This principal has been affirmed by the Federal court of Appeal in the Byram decision.



Allowable business investment loss (ABIL)

A loss realized on shares of a small business corporation or debt owed by a small business corporation may give rise to an allowable business investment loss (ABIL), 50% of which is deductible in computing your Canadian income tax liability.



Losses that a corporation incurs can't be claimed by it's shareholders

A corporation is a separate legal entity, so losses that it incurs can't be claimed by it's shareholders. Loans advanced to a corporation by a shareholder may be deductible as an Allowable Business Investment Loss (ABIL).



Keep all original documents

If CRA (the Canadian Income Tax Department) has challenged any Canadian income tax returns that you have filed, be sure that you keep all original documents related to the year being challenged until the matter is finally settled. In order to claim a Canadian income tax deduction for an allowable business investment loss (ABIL) for money lent to a Canadian Controlled Private Corporation (CCPC), the debt must have been established to have gone bad at the end of the year.



Allowable Business Investment Loss (ABIL)

If you are called upon to honor an arm’s length guarantee given to a private Canadian corporation that carries out an active business, you may be able to claim an Allowable Business Investment Loss (ABIL) for Canadian income tax purposes.



Loss on investment in small business corporation

Money lost investing in a small business corporation may be claimed as a “business investment loss”. It is like a capital loss in that only one-half is deductible however, it can be claimed against any income in the year, not just capital gains.



Unclaimed allowable business investment losses (ABILs)

Unclaimed allowable business investment losses (ABILs) are not included in the newly enacted extended 20-year carryforward period for non-capital losses for Canadian Income Tax purposes. ABILs retain their 10-year carryforward period and become net capital losses thereafter.

Disclaimer:
"This article provides information of a general nature only. It may no longer be current. It does not provide legal advice nor should it be relied upon. If you have specific legal questions you should consult a lawyer."

 

David J.Rotfleisch,C.A., J.D.
Tax And Business Lawyer,

David J. Rotfleisch, C.A., J.D.
Rotfleisch & Samulovitch Professional Corporation
Barristers & Solicitors
2822 Danforth Avenue
Toronto, Ontario
M4C 1M1, PH :- 416-367-4222 Fax 416-367-8649