Letter to the Editor.

Dear Editor,
I invested in a restaurant that just went belly up. How do I account for my investment loss in my BKS Bookkeeping and how is it handled on my tax return?
Randy Restauanteur,

Dear Randy,

To record investment income or losses, open your BKS and go to Income Central. Once at Income Central, click on Investment Income and it will take you to your Investment Income Worksheet. There you can record your information and add any relevant notes for your tax preparer to use to complete your tax return.

This investment is likely best handled as an ABIL in order to maximize your tax benefits. See the comments below on Allowable Business Investment Losses.

Best Regards
Dan
Allowable Business Investment Loss (ABIL)
A loss realized from the arm’s-length sale of shares or qualifying debt of an SBC may qualify as a business investment loss. Similarly, a loss upon the deemed disposition of an uncollectible debt of an SBC or the shares of a bankrupt SBC may also qualify. Taxpayers may also claim an allowable business-investment loss (ABIL) if they continue to hold shares or debt in an SBC that has become insolvent.
For payments made under an arm’s-length guarantee on a debt owing by an SBC the taxpayer will, within certain time limitations, still be able to claim an ABIL on principal repayments made under that guarantee, even though the business no longer qualifies as an SBC.
A business investment loss is calculated the same way as a capital loss, except it may be applied against all income, not just capital gains. One-half of the business-investment loss may be applied against other income in the year the loss is realized. Unused portions of a non-capital loss may be carried back three years with the balance carried forward 10 years, effective for a taxation year that ends after March 22, 2004 (up from seven years previously). Any balance remaining at the end of the 10-year carry forward may only be applied against future taxable capital gains.
The deductible amount of an individual’s ABIL must first be reduced by any previously claimed capital gains deduction. If any allowable business loss is deducted from income, an equal amount of taxable capital gains must be realized and reported as income in subsequent years before the capital-gains deduction becomes available.
Where a corporation is insolvent and neither it nor a corporation controlled by it carries on business, the taxpayer will be allowed to elect a disposition for tax purposes and realize the loss. If that corporation or another controlled by it commences carrying on business within 24 months, the taxpayer must recognize a gain equal to the loss claimed in the year the business recommences.
An election under the Income Tax Act to claim a loss on debt or shares of an insolvent company applies to claiming capital losses even where the company is (was) public.