As an entrepreneur or investor, you may be aware of the potential risks that come with investing in businesses. Unfortunately, it is possible for a business investment to result in a loss. However, the Canada Revenue Agency (CRA) offers a program to help investors recover some of these losses through the Business Investment Loss (BIL) program. In this post, we will discuss everything you need to know about BIL and how it can benefit you as an investor.
What is a Business Investment Loss?
A business investment loss occurs when you invest in a small business or corporation and the investment becomes worthless. This can happen due to a variety of reasons, such as the business not performing well, bankruptcy, or fraud. When this happens, investors can claim the amount of their investment as a loss on their tax return.
What is the Business Investment Loss (BIL) program?
The BIL program is a tax program that allows investors to claim a deduction for the losses they incur from a business investment that becomes completely worthless. This program provides investors with some relief from the financial burden of losing money in a business venture. However, it is important to note that the program only applies to small businesses, and there are certain restrictions and requirements to qualify.
Qualifying for the BIL Program
To qualify for the BIL program, the investment must meet certain criteria. The investment must have been made in a small business corporation, and the corporation must have been a Canadian-controlled private corporation at the time of the investment. Additionally, the investment must have become worthless during the taxation year, and there must be no reasonable expectation of recovering any part of the investment.
How Does the BIL Program Work?
If you qualify for the BIL program, you can claim the loss on your tax return. The amount of the loss is calculated by subtracting the adjusted cost base of the investment from zero. The adjusted cost base is the original cost of the investment plus any expenses incurred to acquire and dispose of the investment.
Once the loss has been calculated, it can be applied against any other capital gains you may have. If you have no capital gains to apply the loss against, you can carry the loss back three years or forward ten years to offset any capital gains in those years.
Final Thoughts
The BIL program can be a helpful tool for investors who have experienced a loss in their business investment. However, it is important to remember that there are restrictions and requirements that must be met to qualify. If you believe you may be eligible for the BIL program, it is recommended that you speak with a tax professional to determine your eligibility and maximize your tax benefits.