My_question_is: Canadian-specific
Subject: Business Investment Losses
Expert: taxman at centa.com
Date: Wednesday November 02, 2005
Time: 12:10 PM -0800
QUESTION:
Hello.
I have a question regarding IT 484R2 from CRA. I have tried to find out
what sort of risk there would be in terms of legitimately claiming business
investment losses (for example, if I invest in a company, companies,
businesses etc) How many years could CRA go back and reassess me and have
there been any cases that CRA denied the deductions?
I just want to mitigate the risk as you might understand. As a result, I
will be paying minimal tax for 04/05 tax years and for future years.
As well, do you have any clients or queries from people that might have a
need to use some losses to offset any capital gains, reduce their taxable
income etc?
===============================================
david ingram replies:
I am at a bit of a loss here. It seems to be a "what if" question. NO ONE,
I repeat NO ONE should make an investment because it is a tax deduction if
the investment is not going to make a profit or has a 99% chance of making a
profit.
Spending $100.00 to get a $40.00 tax refund on something you get no benefit
from is silly. better to pay the $40.00 tax and have $60 left over to spend
on something you want.
However, if you buy shares in or loan money to a CCPC (Canadian Controlled
Private corporation) and the corp goes broke and does not pay you back or
you sell the shares for less than you paid for them, the loss is an ABIL and
one half is deductible against current income in the year. If you cannot
use it all up, you can carry it forward.
The CRA denies all sorts of claims where there is insufficient documentation
or when you do not make an effort to get the money back. In other words, if
you could sue and likely collect because the company you loaned the money to
is still in business, the CRA will deny the claim because you did not try to
collect it hard enough.
The CRA also tries to turn down loans to a son's or a daughter's or a
spouse's or a brother's or a sister's company because they assume the loan
or investment was not made with a real business purpose in mind. However, I
do not believe we have ever lost one of these where the documentation is in
place. The CRA also will reapportion the loss when a Husband makes the
investment in both names, etc.
Good luck. And, I would not recommend a client participate in any tax loss
buying scheme.
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