Phone Phone
ABIL: Allowable Business Investment Loss (ABIL) Deduction – How to recoup your investment losses

Speak to a business and tax lawyer today.

    Send us a message, but doing so does not mean that we are your lawyers until we have confirmed so in writing. Please do not include any confidential information in your message.

    ABIL: How to recoup your investment losses using the Allowable Business Investment Loss Deduction

    You’ve heard of the expression, “It seemed like a good idea at the time.” Unfortunately, you’ve decided to invest your hard-earned money into a promising investment and the hope for a profitable return has gone south.

    The investment may have been a share purchase or a loan that turned into a bad debt when the corporation in which you made the investment has become insolvent, bankrupt, or has proceeded with winding down processes. As a result, the value of your investment, loan, or share will be nil.

    Where there is no hope of recovering your investment, you can still recoup a portion of your investment by deducting half of your Allowable Business Investment Loss (ABIL) if the investment was made in a small business corporation, otherwise known as a Canadian Controlled Private Corporation (CCPC). A CCPC is a private corporation that substantially uses all of its assets in operating an active business in Canada.

    It is important to initiate the ABIL claim as soon as possible after the corporation ceases active business operations.

    You’ve heard of the expression, “It seemed like a good idea at the time.”

    Unfortunately, you’ve decided to invest your hard-earned money into a promising investment and the hope for a profitable return has gone south.

    The investment may have been a share purchase or a loan that turned into a bad debt when corporation in which you made the investment has become insolvent, bankrupt, or has proceeded with winding down processes.

    As a result, the value of your investment, loan, or share will be nil.

    Where there is no hope of recovering your investment, you can still recoup a portion of your investment by deducting half of your Allowable Business Investment Loss (ABIL) if the investment was made in a small business corporation (SBC), a type of Canadian Controlled Private Corporation (CCPC) that earns income from an active business in Canada.

    Normally, “capital losses”, losses from investing in long-term assets, can only be used to reduce taxable income from capital gains. However, designation of  some capital losses as “Business Investment Losses” can allow you to deduct half of them against all types of income in the form of “Allowable Business Investment Losses” (or ABILs).

    In typical circumstances, ABILs arise where someone invests money in shares of an SBC or loans money to an SBC, and loses money on these investments. When handled correctly, this can include shareholder loans, and so the proprietors of small businesses operated in a Corporation can often claim ABILs for money they invest into their business.

    It is important to initiate the ABIL claim as soon as possible after the corporation ceases active business operations.

    This often includes:

    – Payment of GST/HST payroll withholdings made on behalf of a corporation that were not reimbursed

    – Guarantees for a loan that have not been repaid.

    – Acquiring debt of a small business corporation that has not been repaid.

    – Making a direct investment as a partner, joint venture, shareholder, in a private small business corporation that has failed.

    – You own or co-own a corporation and invested your personal funds in the company that has become insolvent.

    – You were a victim of fraud or a scam of a resident business in Canada.

    How much can you save?

    The amount of loss deducted from your income is your allowable business investment loss (ABIL).

    When completing your tax return, you subtract your business investment losses from your capital gains deductions to arrive at the ABIL amount, 50 percent of which is deductible. Depending on your tax bracket, a taxpayer can recover anywhere between 15 percent and 25 percent of their bad investment.

    The ABIL can be deducted from all sources of personal income and can be applied three years back or 10 years forward from the year when the deduction was generated. If not used within the 10 years, the ABIL becomes a capital loss. As such, it can be carried forward indefinitely and claimed against capital gains only.

    Do you qualify for the ABIL?

    You Qualify for an ABIL if:

    • Your loss was an investment or loan (shares or debt) to a CCPC;
    • The CCPC was an SBC (generally, companies earning income from real estate rentals, investment portfolios, or personal services businesses do not qualify)
    • You invested in shares or debt of a the SBC;
    • You disposed of these shares or debt to an arm’s-length party, or were deemed to have disposed of these shares or debt, or were deemed to have disposed of them, at a loss.

    What to include in your claim:

    In claiming the ABIL, the taxpayer should attach a note to your income tax and benefit return that states the:

    • name of the small business corporation
    • number and class of shares or the type of debt you disposed of
    • insolvency, bankruptcy, or wind-up of the Canadian Controlled Private Corporation (CCPC)
    • date you bought the shares, or the date you acquired the debt
    • amount of the proceeds of disposition
    • adjusted cost base of the shares or debt
    • outlays and expenses on the disposition
    • amount of the loss

    Convincing CRA that you did not recover the amount you are claiming is important part of the claim. Items that will be reviewed by CRA include corporate tax filings, documentation available to prove the original investment, tax treatment of other co-owners or lenders, and so on. This is standard procedure.

    ABIL

    Make sure you contact a tax lawyer to help make your ABIL claim. Failures are often due to taxpayers’ filing claims without proper representation or from individuals who lack tax law knowledge and understanding of the proper procedures and documents required to make a successful claim.

    Contact a lawyer at Kalfa Law to help you make a successful ABIL claim. You work hard for your money. We work hard for you to keep it ™.

    F.A.Q’s:

    How much can I deduct from my losses with the Allowable Business Investment Loss Deduction?
    You can deduct 50% of your allowable business investment loss (ABIL), which is calculated by deducting your business investment loss from your capital gains deduction.
    How do I calculate my allowable business investment loss?
    To calculate your allowable business investment loss, you need to subtract your business investment losses from your capital gains deductions to arrive at the ABIL amount, 50 percent of which is deductible.
    How far back and forward can I use the ABIL deduction?
    The ABIL can be applied three years back or 10 years forward from the year when the deduction was generated. If not used within the 10 years, the ABIL becomes a capital loss. As such, it can be carried forward indefinitely and claimed against capital gains only.
    How do I qualify for the ABIL deduction?
    You qualify for the Allowable Business Investement Loss Deduction only if the investment was made in a small business corporation, otherwise known as a Canadian Controlled Private Corporation (CCPC). A CCPC is a private corporation that substantially uses all of its assets in operating an active business in Canada.


    -James Alvarez, Tax Counsel

    © Kalfa Law 2020

    The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

    Close Menu

    Book an Appointment 1-800-631-7923

    Call Us
    1-800-631-7923
    Speak with a Lawyer
    1-800-631-7923

    Email Us
    [email protected]