A loss on an investment in a company you own or made in another person’s small business can qualify for some advantageous tax breaks. This helps ease the impact on your finances for the year. Whether the investment was in shares or a loan to a small business, it may qualify for a full deduction against your personal income.
Typically, only half of an investment loss would be deducted and only against its capital gains. The ability to deduct a business investment loss against any type of personal income can substantially reduce your income tax for the year. It’s important that the nature of the investment be properly analysed to ensure it meets the criteria. Many small businesses will meet the criteria.
Furthermore, if the loss exceeds your income for the year, it is possible to carry back the loss against income you earned in the three previous years. Likewise, you can carry them forward to apply against future income.
The Canada Revenue Agency will typically ask for some documents to support your claim. If this occurs, consult with your advisor to make sure that you can at least minimize your income taxes. Your Padgett advisor can also help you determine if the loss can be claimed even though the investment still exists, but the likelihood of recovery is very low.
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