You invested your hard earned money in a promising business. But sometimes, what looked like a good capital investment turns out to be financially insolvent. If this is the case, Canada Revenue Agency (CRA) may allow you a tax deduction, namely Allowable Business Investment Loss (ABIL).
Some common scenarios of investments eligible for Allowable Business Investment Loss (ABIL) are investments in shares, loans, guarantees or mortgages to a privately held Canadian company. The company you invested in, or lent money to, must be bankrupt or insolvent at the end of the year for which the claim is made.
With the high marginal personal tax rates across Canada, the recovery may be worth as much as 25% of the original loan or investment in shares. This is because the tax deduction is for 50% of the actual loss incurred - the "allowable" portion of the Business Investment Loss. The recovery varies, depending on your personal tax rates, province of residence and many other factors. Even if you do not have enough income in the year the Allowable Business Investment Loss (ABIL) claim was made, the loss can be carried back three years and forward ten years. Assuming that your income was high enough for the past few years, you may in fact receive the full benefit of the tax loss deduction the same year the Allowable Business Investment Loss (ABIL) claim was made and the past tax returns were requested for adjustment. The higher your personal tax rates are, the higher your refund will be.
For a free professional evaluation of your Allowable Business Investment Loss (ABIL) claim call businessloss.ca at 1-855 -TAX-ABIL (855-829-2245) or complete our confidential Contact form.
A business investment loss is a capital loss from disposition of shares or debt of a Small Business Corporation (Canadian controlled private corporation that uses 90% or more of its assets in operating an active business in Canada). One half of the business investment loss is an Allowable Business Investment Loss (ABIL).
Why is this important? Because Allowable Business Investment Losses can be deducted against all sources of income for the year.
If an Allowable Business Investment Loss (ABIL) cannot be deducted in the year it arises, it is treated as a non-capital loss that can be carried back three years and forward ten years against taxable income from such year. If unused after ten years, an Allowable Business Investment Loss (ABIL) becomes a capital loss that can be carried forward indefinitely and claimed against capital gains only.
There are numerous cases when taxpayers invested their lifetime savings in real estate mortgages or similar projects. The projects are usually run under a corporation that will mortgage (and sometime second mortgage) properties under development in order to obtain the necessary financing. If the projects are unsuccessful and the loans are uncollectible, the taxpayer may have a valid Allowable Business Investment Loss (ABIL) claim. A corporation can also claim an Allowable Business Investment Loss (ABIL).
A corporation doesn't need to file for bankruptcy to be eligible for an Allowable Business Investment Loss (ABIL) claim. However, the shareholder must be able to prove the loan advanced to the corporation is not recoverable.
Sometimes directors of a corporation are found liable by Canada Revenue Agency (CRA) for GST or payroll withholdings. If the directors paid the amount but were not reimbursed by the corporation, this may be eligible for an Allowable Business Investment Loss claim (ABIL).
If an investment was made either through acquiring shares or debt of the financed corporation and the business failed and cannot repay the loan, the taxpayer may be eligible to claim an Allowable Business Investment Loss (ABIL).
The tax laws deem amounts honored under the guarantee as amounts owing by a Small Business Corporation to the taxpayer. This is usually the case when the corporation received a loan that was personally guaranteed by the taxpayer, and the creditors executed the guarantee due to the inability of the corporation to repay the loan. The amount of unpaid guarantees may be eligible as an Allowable Business Investment Loss (ABIL).
Your trusted Chartered Accountant provides a full range of tax services regarding Allowable Business Loss (ABIL) claims.
First you need to contact us for a free evaluation of your Allowable Business Loss (ABIL) claim. A telephone interview will be conducted to discuss your potential claim. After we get an understanding of your claim, you will be provided with your options, estimated refund and our fee quote.
Our services are priced based on the complexity of your ABIL claim, the amount involved and estimated time to be spent on your engagement. A fee quote is provided to you in advance. We will not charge anything to you until our services are agreed upon.
Sometimes an entire group of investors may be involved with the same Allowable Business Loss (ABIL) claim (i.e. they invested money in the same insolvent business). Depending on the number of claims involved, our fees charged to each investor can be significantly discounted.
Virtually all Allowable Business Loss (ABIL) claims are audited by Canada Revenue Agency (CRA). In order to claim a tax deduction for an Allowable Business Loss (ABIL), supporting documents must be available. Keep all your records, minutes of discussions, cancelled cheques, accounting and financial records or anything else that could support your Allowable Business Loss (ABIL) claim.
The Allowable Business Loss (ABIL) audit is not a full audit of your personal tax return. Usually Canada Revenue Agency (CRA) will verify only the eligibility criteria for such a claim, however they may decide to audit other areas as well.
You can expect to wait at least a couple of months before a refund is issued to you.
In this unfortunate situation we will discuss your options and whether you want to appeal CRA's decision. Depending on the complexity of your claim we may refer you to a tax lawyer.
Dorin is a Chartered Accountant with almost 16 years of public practice experience. Prior to arriving in Canada, Dorin worked as a tax officer and later as a tax consultant for Pricewaterhouse Coopers Romania.
He has had experience in local and national firms in Edmonton and Calgary, gaining invaluable knowledge in tax services. Throughout the years he has advised clients a wide variety of tax matters.
Dorin completed all three levels of the In-depth Tax Course, the most comprehensive tax training in Canada offered by the Institute of Chartered Accountants.