Business sold tax issues

[Melee]

Hello, 

One of my clients sold a business with $15,000 business investment loss in 2020, he will have 50% of $15,000 as allowable business investment loss ($7,500), Can he use the $7,500 to deduct his personal taxable income in 2023? or he has to use it to deduct  taxable income that within the business? please advise. 

 

Thanks 

[Geo123]

Hello Melee,

ABIL (Allowable Business Investment Loss)
As a rule, you can deduct a business investment loss if you incurred losses in the taxation year on investments (shares or debt securities) in a Canadian-controlled Small Business Corporation Shares (not listed on a stock exchange).
You can claim this loss on lines 21700 and 21699 of the federal return, and for Quebec residents on lines 233 and 234 of the Quebec return.
The program will generate the federal ABIL schedule, as well as form TP-232.1, Calculation of ABIL, for Quebec.

For more information, consult the following sites:
For the CRA:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-217-228-business-investment-loss.html
For Revenu Québec:
https://www.revenuquebec.ca/en/citizens/income-tax-return/completing-your-income-tax-return/completing-your-income-tax-return/line-by-line-help/201-to-260-net-income/line-234/

To report this loss, please follow these steps:
1. On the "Left-side menu on the Interview tab", select "Interview setup".
2. On the right-hand side of the screen, go to "Investment income and expenses" group, check the box for "Capital gains (or losses) and capital gain history".
3. Return to the "Left-side menu on the Interview tab" and select "Capital gains (or losses) & ABIL".
4. On the page generated on the right, click on the plus sign "+" icon to the right of the line "Current year allowable business investment loss (ABIL)".
5. On the page that appears, provide the pertinent information.
6. You must enter the "Date of disposition" and "Proceeds of disposition".
7. If the amount is from debt securities go to line "Amount of small business loan eligible for the ABIL deduction" and in the field to your right, choose one of the two options and enter the amount.
The program will calculate the loss and carry over the amounts to the relevant lines of the returns.
 

[Simon Bourdeau]

How about if you made profits or capital gain out of the sale of a small canadian corporation not publicly listed on stock exchange?

 How do you declare that capital gain in uFile?

[Geo123]

Hello Simon Bourdeau,

>> Capital gains and ABIL >> Qualified small business corporation shares (QSBCS) “+”

Qualified small business corporation shares

A share of a corporation will be considered to be a qualified small business corporation share if all the following conditions are met:

*at the time of sale, it was a share of the capital stock of a small business corporation, and it was owned by you, your spouse or common-law partner, or a partnership of which you were a member;

throughout that part of the 24 months immediately before the share was disposed of, while the share was owned by you, a partnership of which you were a member, or a person related to you, it was a share of a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the corporation were:

*used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation;

*certain shares or debts of connected corporations; or

*a combination of these two types of assets; and

throughout the 24 months immediately before the share was disposed of, no one owned the share other than you, a partnership of which you were a member or a person related to you.

*Generally, when a corporation has issued shares after June 13, 1988, either to you, to a partnership of which you are a member, or to a person related to you, a special situation exists. We consider that, immediately before the shares were issued, an unrelated person owned them. As a result, to meet the holding-period requirement, the shares cannot have been owned by any person other than you, a partnership of which you are a member, or a person related to you for a 24-month period that begins after the shares were issued and that ends when you sold them. However, this rule does not apply to shares issued:

-as payment for other shares;

for dispositions of shares after June 17, 1987, as payment of a stock dividend; or

-in connection with a property that you, a partnership of which you were a member, or a person related to you disposed of to the corporation that issued the shares. The property disposed of must have consisted of either:

-all or most (90% or more) of the assets used in an active business carried on either by you, the members of the partnership of which you were a member, or the person related to you; or

-an interest in a partnership where all or most (90% or more) of the partnership's assets were used in an active business carried on by the members of the partnership.