23 August 1994 External T.I. 9413755 - ABIL

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether taxpayer has the option of treating an ABIL as a capital loss.

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

If loss qualifies as a BIL under 39(1)(c) of the Act, it must be claimed as such. Unlike ordinary capital losses, an ABIL is deducted from ordinary income pursuant to 3(d) of the Act.

				5-941375

XXXXXXXXXX		M.Shea-DesRosiers

Attention: XXXXXXXXXX

August 23, 1994

Dear Sir/Madam:

Re: Allowable Business Investment Loss ("ABIL")

This is further to your letter of May 13, 1994 wherein you enquire as to whether a taxpayer has the option of treating an ABIL as a capital loss. We apologize for the delay in replying to your letter.

All references to statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended consolidated to June 10, 1993 (the "Act").

An ABIL is defined in paragraph 38(c) of the Act as 3/4 of a business investment loss (BIL) as defined in paragraph 39(1)(c) of the Act. To qualify as a BIL, an amount must first qualify as a capital loss as defined in paragraph 39(1)(b) of the Act. Thus where a transaction does not give rise to a capital loss, or where a capital loss is nil as, for example, under paragraph 40(2)(g) of the Act, no BIL can result.

Paragraph 39(1)(c) of the Act defines a BIL as a loss that is a capital loss realized on a disposition after 1977 to which subsection 50(1) of the Act applies or in an arm's length disposition of a share of the capital stock of a small business corporation or a debt owing by a Canadian-controlled private corporation.

Where the taxpayer's loss qualifies as a BIL under paragraph 39(1)(c) of the Act, it must be claimed as such and not as a capital loss. Unlike ordinary capital losses, the allowable portion of a BIL is deducted from ordinary income pursuant to paragraph 3(d) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch