Investment losses may be partially deductible depending upon the nature of the investment and structure of the organization invested in. The rules are complex and strict. The investment must first be in the form of a loan or shares in a Small Business Corporation (SBC). A loss realized on sale of the debt or shares to a non-arms length individual would qualify for loss treatment. In addition, holding either debt or shares in an SBC which is insolvent would also qualify. The loss is similar to a capital loss on a sale of shares in a public company, only it is afforded special treatment due to it being an investment in a small business corporation. One half of the loss is deductible against any source of income. This loss is called an Allowable Business Investment Loss (ABIL) Any loss not used in the current year can be carried back three years and forward ten. The use of the loss is restricted if you have ever claimed the capital gains deduction in the past. The use of claiming the capital gains deduction the future will be affected by any ABIL claimed now. It is important to have your documentation in order when claiming this type of loss as CRA frequently reviews these claims. Please see CRA's page on ABIL's.
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