# Writing off a shareholder loan against personal income



## foolish (Sep 25, 2015)

Several years ago I started a corporation and financed it by giving it shareholder loans from my personal money. The company has failed. The fact that it never had any income and I never paid taxes means that I might still have some flexibility in financial reporting.

I've now got a regular job and income. If I officially close the company in 2016, can I write off the shareholder loans as a business loss against my personal employment income during 2016? 

Also, in order to get the maximum tax return from the losses, would it be possible to write off some of the losses in 2016 and some in 2017? The total shareholder loan losses would be less than my total annual income, but there is greater value in writing off against the higher tax levels at the top of my income rather than driving my income down to near $0 where the tax rate is very low.


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## makemerich (Oct 1, 2015)

What you are referring to is ABIL (allowable business investment losses.) Here's some good info on ABIL:

http://www.taxtips.ca/smallbusiness/businessinvestmentloss.htm

Long story short - yes, you should be able to write off your SHL against your regular income in 2016 pending that your company met the requirements as a QSBC:

http://barretttaxlaw.com/capital-gains-exemption-qualified-small-business-corporations/

With that being said, you should claim the loss all in one year. There is no reason in this situation why part of your SHL would be a bad debt whereas another part would not. Either the company is insolvent or it's not. I would recommend that you have the company struck from the registry in 2016 in the event that CRA challenges your ABIL claim (which is not unusual.) Note that you can carry back three years or forward 10 IF you can't use all of your ABIL in 2016. If your marginal tax rate in 2017 is going to be higher than 2016 consider holding off claiming your ABIL until 2017 to smooth your income out a little bit.


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## foolish (Sep 25, 2015)

Thanks very much. Just what I needed to know.


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