Allowable business investment loss (ABIL)

The CRA says that if you had a business investment loss, you may be able to deduct a portion of it from income, and that portion is the ABIL. It can arise for someone who held shares of, or lent money to, a small business corporation that went bankrupt or became insolvent, or whose shares were sold at a loss to an arm’s-length buyer.

How it is defined

Section 39(1)(c) of the Income Tax Act defines a business investment loss by reference to a disposition to a person dealing at arm’s length, or one to which subsection 50(1) applies, of a share of a small business corporation or certain debts, less amounts the section sets out. The CRA says the amount you can deduct is the business investment loss multiplied by the capital gains inclusion rate for the year, and that you claim it on line 21700 of the return with a note describing the corporation.

What to ask

• Does the corporation meet the Act’s test for a small business corporation?
• Was the other party at arm’s length from the taxpayer?
• What does Income Tax Folio S4-F8-C1, which the CRA’s page lists, say about the particular facts?

See the capital gains inclusion rate and how capital gains are taxed on a sale.