Business Investment Loss (Québec)

Business investment loss

An allowable business investment loss (ABIL) is a special type of capital loss that allows you to deduct a portion of the loss from any type of income, not just capital gains. A Business Investment Loss (BIL) occurs when a taxpayer invests in a small business corporation and the investment becomes worthless or is sold at a loss. BILs provide a more favourable tax treatment than regular capital losses because they can be used to offset both taxable capital gains and, under certain conditions, other income. The rules for claiming an ABIL are similar for both federal and Quebec tax purposes.

The loss must arise from shares in or debts owing from a small business corporation, typically a Canadiancontrolled private corporation (CCPC). Business investment loss is reported on Schedule 3 and Schedule G of the T1 return and TP1 return. Business loss can be claimed as a deduction against other income to a maximum of the taxpayer’s net income from all sources, with any unused portion carried back 3 years or forward up to 10 years for both Federal and Quebec tax returns.

A business investment loss is a loss sustained during a year on the disposition of:

• A share of the capital stock of a small business corporation
• A debt owed by a small business corporation, or by a CCPC that:
  • went bankrupt while carrying on a small business, or
  • was insolvent and was carrying on a small business at the time it was wound up.

Small Business Corporation (SBC): A Small Business Corporation (SBC) is a Canadian-controlled private corporation (CCPC) that meets certain criteria, allowing it to access favourable tax rules, including the small business deduction and eligibility for Business Investment Losses (BILs). SBC is:

• Canadian-Controlled: Must be controlled by Canadian residents.
• Private Corporation: Shares are not publicly traded.
• Active Business Requirement: At least 50% of the corporation’s assets must be used in an active business carried on primarily in Canada.

BIL: A Business Investment Loss (BIL) arises when a shareholder or creditor incurs a loss in a year from the disposition of shares or debts of a small business corporation (SBC) or a CCPC that went bankrupt or became insolvent while operating a small business. If shares or debts in an SBC become worthless or are sold at a loss, they can generate a BIL for the investor. The ABIL workchart is completed by entering the proceeds of disposition and the adjusted cost of the shares to calculate the allowable business investment loss, which is reported on Line 22000 of the federal T1 return and Line 234 of the Québec TP-1 return.

Example :

If Hugo invested $50,000 in a CCPC and the shares became worthless

Answer: He can claim a BIL deduction of $50,000 on both his federal and Québec tax returns, subject to income limits and carry-forward/carry-back rules, with an allowable deduction of $25,000 reported on Lines 22000 (T1) and 234 (TP-1).

How to do in TaxTron? Input the value from the S3 slip and claim 50% of that amount, up to the maximum allowable deduction.