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A business investment loss is what you lose when shares or debt in a small business corporation turn worthless, and half of it, at today’s 50% inclusion rate, comes off your other income as an allowable business investment loss (ABIL). On a $40,000 loss that’s a $20,000 deduction, which saved about $6,080 in Ontario tax at $90,000 of taxable income.
What counts as a business investment loss?
The CRA describes it as a loss on shares or debt of a small business corporation, where you dispose of them through insolvency, bankruptcy or a wind-up. A share price that fell doesn’t qualify on its own. Neither does money you lent to a friend’s side project that nobody has formally closed.
The loss has to be real and documented. That means you can name the corporation, the class of shares or the type of debt, the date it went under, what you paid, and what you got back, if anything. If the paperwork isn’t there, you’ll have a hard time defending the claim later.
How does the ABIL deduction work?
The CRA’s formula is short: your business investment loss for the year, multiplied by the capital gains inclusion rate, gives your ABIL. You claim it on line 21700 of your return and report the loss on Schedule 3. Form T1436, the capital gains worksheet, has the steps.
The useful part is that an ABIL isn’t limited to capital gains. It can offset employment pay, business profit or rental income. An ordinary capital loss can’t do that, so the gap between the two treatments is real money.
What rate is used? The CRA page for the 2025 return shows 50%. We couldn’t find a CRA page stating the 2026 rate, so treat 50% as the working figure and check before you file. The proposed rise to two-thirds was cancelled on 21 March 2025.
| Step | Example amount |
|---|---|
| Loss on the shares or debt | $40,000 |
| ABIL at a 50% inclusion rate (line 21700) | $20,000 |
| Taxable income before the ABIL, Ontario | $90,000 |
| Taxable income after the ABIL | $70,000 |
| Federal and Ontario tax at $90,000 | $18,462.25 |
| Federal and Ontario tax at $70,000 | $12,382.25 |
| Tax saved | $6,080.00 |
What does a $40,000 loss save you?
We ran the example through the engine behind our income tax calculator, using 2026 Ontario and federal rates. The saving of $6,080 works out to 30.4% of the ABIL. Someone at $60,000 taxable income would save less, about $4,306 on the same $20,000, because part of the deduction falls on lower steps.
So the same loss is worth more to a high earner.
To see where your own last dollar is taxed, try the marginal tax rate calculator. One warning: the Ontario figure jumps in narrow bands near $72,000 and $200,000 because the Ontario Health Premium rises 25 cents per dollar there, so don’t read too much into a single reading.
What if you can’t use the whole ABIL?
Unused amounts don’t vanish, but they don’t behave like normal losses either. The CRA says the usual three years back and twenty years forward doesn’t apply to a non-capital loss that comes from an ABIL. Instead, an ABIL not used within 10 tax years becomes a net capital loss in the eleventh year.
A net capital loss can go back three years and forward without a time limit, but only against taxable capital gains. So a late start is costly: after the tenth year the loss loses its power to offset pay.
If you also have gains to report, the capital gains tax calculator shows what a sale costs at the same rate. Losses and gains on one return can feel like a puzzle, and the order matters.
Mistakes that cost people the claim
The first is treating any bad investment as a business investment loss. It has to be a small business corporation, and it has to end in insolvency, bankruptcy or a wind-up. The CRA points to Income Tax Folio S4-F8-C1 for the detail.
The second is missing the note. The CRA asks you to attach the corporation name, share class or debt type, key dates, proceeds, adjusted cost base and expenses of the sale. Skipping it invites a question you’d rather not answer from memory.
The third is a gap on our side. The lifetime capital gains exemption can affect the amount, but the CRA page we used doesn’t say how, so we’ve left it out. If you’ve claimed that exemption before, ask an accountant before you file.
And don’t expect a bigger paycheque. The loss cuts tax when you file, so what you see in the take-home pay calculator stays the same through the year.
Where the numbers come from
The rules and the claim steps come from the Canada Revenue Agency pages on business investment losses and on capital losses, both for the 2025 return. Rates for the example are the 2026 federal and Ontario figures built into our calculators, which use the CRA’s published tax brackets. This site isn’t connected with the CRA or any government.
Frequently asked questions
What is an allowable business investment loss?
It is the part of a business investment loss you can deduct from other income. The CRA sets it as the loss multiplied by the capital gains inclusion rate for the year.
Where do I claim an ABIL?
On line 21700 of your return, with the loss reported on Schedule 3. The CRA's capital gains worksheet, form T1436, has the steps.
Can an ABIL offset my salary?
Yes. Unlike an ordinary capital loss, it can be deducted against any income for the year, including employment, business and rental income.
What if I can't use it all this year?
An unused ABIL can be carried over for 10 tax years. After that it becomes a net capital loss, which only offsets taxable capital gains.
What do I need to attach to my return?
A note naming the corporation, the share class or debt type, the dates, the proceeds, the adjusted cost base and the costs of the disposition.
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Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.