As a business owner, you may have heard of the term “Allowable Business Investment Loss” or ABIL, but what exactly does it mean and how can it affect your taxes? In this article, we will explore everything you need to know about ABIL, including what it is, how to claim it, and some tips for maximizing your tax benefits.

What is ABIL?

An Allowable Business Investment Loss (ABIL) is a special tax deduction available to Canadian taxpayers who have suffered a loss on an investment in a small business corporation or a partnership. This deduction is designed to help mitigate the risks associated with investing in small businesses, which can be highly volatile and unpredictable.

How to Claim ABIL

To claim an ABIL, you must have invested in a small business corporation or partnership that has gone bankrupt or become insolvent, resulting in a total loss of your investment. You must also meet the following conditions:

• The investment was made in a corporation or partnership that was carrying on an active business in Canada at the time of the investment.
• The investment was not made in a corporation or partnership that was a specified investment business or a personal services business.
• You did not dispose of the shares or partnership interests before the corporation or partnership became insolvent or bankrupt.
• You did not sell the shares or partnership interests to a person who was not dealing at arm’s length with you.

If you meet these conditions, you can claim an ABIL equal to 50% of the lost investment. The ABIL can then be used to offset any capital gains you may have earned in the same tax year or in any of the previous three tax years. If you have no capital gains to offset, you can carry the ABIL forward indefinitely to offset any future capital gains.

Tips for Maximizing Your ABIL Benefits

Here are some tips for maximizing your ABIL benefits:

• Keep accurate records of your investment in the small business corporation or partnership, including any share certificates, partnership agreements, or other documents that demonstrate your ownership of the investment.
• Consider investing in a diversified portfolio of small business corporations or partnerships to spread your risk and reduce the likelihood of a total loss on any single investment.
• Work with an experienced tax professional to ensure that you meet all of the conditions for claiming an ABIL and to help you maximize your tax benefits.

Conclusion

In summary, an Allowable Business Investment Loss (ABIL) is a tax deduction available to Canadian taxpayers who have suffered a loss on an investment in a small business corporation or partnership. By understanding the conditions for claiming an ABIL and working with an experienced tax professional, you can maximize your tax benefits and minimize your risk when investing in small businesses.

If you need help navigating the tax implications of your small business investments or have any questions about ABIL, contact JTT Accounting, a leading accounting firm for anyone in Toronto, Ontario. Our experienced team of professionals can provide you with expert advice and support to help you achieve your financial goals.