Allowable Business Investment Loss Supporting Documents
What is ABIL?
ABIL is a special type of allowable capital loss, this can be deducted against all sources of income.
Do you qualify?
Here are 4 qualifiers to test if you can claim ABIL
- Your loss was an investment or loan (shares or debt) in a private Canadian Corporation i.e. not listed on any publicly traded market
- The private Canadian Corporation must be majority owned by Canadian residents
- The business conducted by the small business corporation must be from a location in Canada and must be so called “active income” (real estate rental or portfolio investment firm is not active income). Holding companies may be eligible in certain circumstances
- Unless you are a shareholder in the company that you loaned funds to, interest has to be charged (not necessarily paid) on the loan.
All four qualifiers must apply in order to claim the ABIL
What are the supporting documents needed?
Information about the corporation
- A list of the major assets of this corporation and an explanation of how each one was used in the business
- An explanation of what happened to the assets of the corporation
- A listing of the names and addresses of all other shareholders in this corporation
- A percentage of share ownership of all shareholders
- Share Certificate and/or shareholder registry showing that you were a registered shareholder of the corporation
- If the T2 returns were not filed up to the date the operation ceased, provide all of the financial statement for the corporation up to that date
- An explanation of where you obtained the funds to invest in this corporation
- Any additional documents not already asked for on the other checklist that you think will help process the claim.
Information about the Operation
- The final financial statements
- A list of all the creditors
- A list of all of the corporation’s assets and liabilities on that date it went bankrupt; (a copy of the statement of claim)
- Documentation of the disposition of the corporation’s assets and of the distribution of the proceeds from those dispositions.
- A copy of the statement of claim filed with the trustee in bankruptcy
- The balance sheet prepared by the trustee indicating which assets were recovered
- Confirmation from the trustee of the amounts distributed to the creditors
- Confirmation of whether or not the charter has been surrendered.
If investment was in the form of shares of capital stock:
- Documentation confirming your acquisition of the shares
- Documentation confirming your payment to the company for the shares. You should include either the originals of your cancelled cheques; certified true copies of both the front and back of all cheques; or other documentary evidence showing the transfer of your funds into the corporation’s account
- Copies of any share certificate that were deemed to be of nil proceeds.
- Copy of the share register of the corporation
- Copy of sale agreement
- Documentation to support outlays and expenses related to the sale
- Documentation confirming the fair market value of the shares
- A list, indicating the amount and type of any dividends received from the shares and information indicating which shares they related to.
If investment was in form of loan or shareholder’s loan to the corporation:
- A copy of the shareholder loan account from the general ledger of the corporation and details of all transaction in the account. (Shareholder loans)
- A copy of the contractual loan agreement, promissory note, or similar documentation, clearly showing:
- The date of the loan
- The amount of the loan
- The interest rate
- The terms of repayment
- The repayments that have been made against the principal amount of the loan
- The balance still owing on the loan
- Documentation confirming the funds were transferred to the corporation. You should include: either the originals of your cancelled cheques, certified true copies of both the front and back of all cheques, or other documentary evidence showing the transfer of the funds into the corporation’s account
- A log of the dates, amounts and nature (i.e. cheques, payments of personal expenses, etc.) of repayments received on your loan.
- A log of the years and amounts of interest income reported on your income tax returns in relation to the loan.
- A description of your attempts to recover the money you advanced in behalf of the corporation and an explanation of why you have been unable to collect.
- Information detailing how the advanced funds were used by the corporation
If investment was in form of a guarantee in favour of the corporation:
- A copy of guarantee, or similar documentation, clearly showing:
- The date of the guarantee was given
- The amount of the guarantee
- The repayments that have been made against the guarantee
- The balance still owing on the debt that was guaranteed
- The guarantee is signed by the guarantor
- Evidence of your funds having been set aside as a loan guarantee
- A statement from the lender demanding payment
- Documentation confirming any payments made under the guarantee and the dates the payments were made. You should include either originals of the cancelled cheques, certified true copies of both the front and back of all cheques or other documentary evidence showing the transfer of your funds to the creditor
- A description of your attempts to recover the money you advance on behalf of the corporation and an explanation of why you have been unable to collect
- Information detailing how the advanced funds that were guaranteed by you, were used by the corporation
- Information detailing the relationship between the lender and the guarantor
- Confirmation from the lender of the amount to be collected