Allowable Business Investment Loss

A business investment loss may arise when an individual realizes a capital loss on the actual or deemed disposition of a debt owed by OR on a share of a Small Business Corporation. An Allowable Business Investment Loss (ABIL) is the tax allowable portion (50%) of the capital loss.

An individual may crystallize a business investment loss by making an election in their personal income tax return. In a recent case (Dhaliwal) the Court decided an Allowable Business Investment Loss (ABIL) election was considered made even when the tax return was electronically filed and there was no way to add a document, form or election to it.

Small Business Corporation

A Small Business Corporation is a Canadian-controlled private corporation where more than 90% of the fair market value of its assets is attributable to assets that

  • are used principally (more than 50%) in an active business carried on primarily (more than 50%) in Canada;
  • are shares or debt of one or more small business corporations that are connected to it (the corporation owns more than 10% of the issued share capital of the other corporation); or
  • a combination of the above.

A small business corporation also includes a corporation that was a small business corporation at any time during the 12 months before the disposition.

Tax Deduction

Unlike allowable capital losses, which may be deducted only against taxable capital gains an allowable business investment loss may be claimed to offset income from any source in the tax year during which the loss is incurred. If the Allowable Business Investment Loss (ABIL) is not fully claimed in the year incurred, it may be claimed as a non-capital loss that may be carried back three years and forward 10 years to offset income from any source. To the extent an Allowable Business Investment Loss (ABIL) is not used, it reverts to a net capital loss, which may be carried forward indefinitely but deducted only against taxable capital gains.

TIPS & TRAPS

Virtually all Allowable Business Investment Loss (ABIL) claims are audited by CRA. This is a very complex area that needs careful planning and preparation. An election by way of letter must be filled with CRA to indicate the intention to claim the Allowable Business Investment Loss (ABIL).

Fore more information about Allowable Business Investment Loss (ABIL) claims, we developed www.businessloss.ca website that is dedicated to ABIL tax recovery process.

Your trusted Chartered Accountant provides Allowable Business Investment Loss (ABIL) tax recovery services to clients located in Calgary and area.