A Small-Business Investment Loss: When an ABIL May Apply

A failed private-company investment does not automatically create a deductible business loss. The debt or shares, debtor’s status, timing and steps taken to establish the loss all matter.

Adapted from a guide first written for Quebec readers: passages specific to Quebec were removed. Rules in your province may differ.

Identify the investment and the legal loss event

An allowable business investment loss (ABIL) is a special tax treatment for a qualifying business investment loss. It may arise from certain shares or debt of a small business corporation, but a drop in value alone is not enough. A share may need to be disposed of or deemed to have become worthless under the rules; a debt may need to be established as a bad debt. Related-party, corporation and insolvency facts can change the analysis.

Gather subscription agreements, loan documents, repayment demands, financial statements, insolvency notices, shareholder records and evidence of collection efforts. Record the dates carefully: whether a debt is uncollectible or a share is worthless can be a legal and factual determination.

Do not claim an ordinary investment loss by assumption

An ABIL may be treated differently from a capital loss, including how it can be applied against income. The rules also include limitations and later consequences if the business or debt recovers. Ask a tax professional to identify the correct tax year, form and supporting records before filing or amending a return.

Sources and limits

Source: Canada Revenue Agency, Business investment loss. ABIL status depends on detailed statutory and factual tests; obtain tax advice before reporting a private-company loss.

General information based on federal and national rules; provincial rules may differ. Confirm with the official body before acting.