If you had a business investment loss this year, you can deduct 1/2 of the loss from income.

If you had a business investment loss this year, you can deduct 1/2 of the loss from income. The amount of the loss you can deduct from your income is called your allowable business investment loss (ABIL). Complete Chart 6 to determine your ABIL and, if applicable, your business investment loss reduction.

Claim the deduction for the ABIL on line 217 of your return. Enter the gross business investment loss on line 228 of your return.
What is a business investment loss?

A business investment loss results from the actual or deemed disposition of certain capital properties. It can happen when you dispose of one of the following to a person you deal with at arm’s length:

  • a share of a small business corporation; or
  • a debt owed to you by a small business corporation.

For business investment loss purposes, a small business corporation includes a corporation that was a small business corporation at any time during the 12 months before the disposition.

You may also have such a loss if you are deemed to have disposed of, for nil proceeds of disposition, a debt or a share of a small business corporation under any of the following circumstances:

  1. A small business corporation owes you a debt (other than a debt from the sale of personal-use property) that is considered to be a bad debt at the end of the year.
  2. At the end of the year, you own a share (other than a share you received as consideration from the sale of personal-use property) of a small business corporation that:
  • has gone bankrupt in the year;
  • is insolvent, and a winding-up order has been made in the year under the Winding-up Act; or
  • is insolvent at the end of the year and neither the corporation, nor a corporation it controls, carries on business. Also, at that time, the share in the corporation has a fair market value of nil, and it is reasonable to expect that the corporation will be dissolved or wound up and will not start to carry on business*.

* You or a person that you do not deal with at arm’s length will be deemed to have realized an offsetting capital gain if the corporation, or a corporation it controls, carries on business within 24 months following the end of the year in which the disposition occurred. You or that person will have to report the capital gain in the tax year the corporation starts to carry on business. This applies if you or the person owned the share in the corporation at the time the business started.

You can elect to be deemed to have disposed of the debt or the share of the small business corporation at the end of the year for nil proceeds of disposition, and to have immediately reacquired the debt or the share after the end of the year at a cost equal to nil. To do this, you have to file an election with your return. To make this election, attach to your return a letter signed by you. State that you want subsection 50(1) of the Income Tax Act to apply.

You can deduct your ABIL from your other sources of income for the year. If your ABIL is more than your other sources of income for the year, include the difference as part of your non-capital loss. You can carry a non-capital loss arising in tax years ending after March 22, 2004 back three years and forward 10 years.

Although you can generally carry a non-capital loss arising in tax years ending after 2005, back three years and forward 20 years, this extension does not apply to a non-capital loss resulting from an ABIL. Instead, an ABIL that has not been used within ten tax years will continue to become a net capital loss in the eleventh year.

To carry a non-capital loss back to 2006 or later, complete Form T1A, Request for Loss Carryback, and include it with your current year’s return. Do not file an amended return for the year/s to which you want to apply the loss.

The unapplied part of your non-capital loss resulting from an ABIL arising in 2004 or future years will become a net capital loss in the eleventh year.

Any ABIL that you claim for your current year will reduce the capital gains deduction you can claim in future years.

Share this post