Business investment loss ABIL

Question 1

Business investment loss (Taxation)

Answer 1

• For tax purposes, in the year a corporation declares bankruptcy, or is insolvent (subject to certain conditions), its shareholder(s) may file an election to deem the shares to have been disposed of for proceeds equal to nil
  o Generally, this will yield a capital loss equal to the ACB of the shares
• A capital loss of small business corporations is given special treatment and is deemed to be a business investment loss
  o Half of the business investment loss is determined to be an “allowable business investment loss” (ABIL) and can be applied immediately against income from any source
  o The ABIL can be carried back up to three years or forward up to 10 years
  o If the ABIL is not used by the end of the 10 years, it will become a capital loss
  Reference: ITA 50(1), 39(1)(c), 111