I made a loan to a friend to help start up their business. However, his business was not successful and he will not be able to pay back the loan. Is there any tax relief for this bad debt?
If the company the loan was provided to qualified as a Small Business Corporation, you will be eligible to deduct 1/2 of the loss from the loan as an Allowable Business Investment Loss (ABIL). You can deduct your ABIL from your other sources of income for the year. If your ABIL is more than your other sources of income for the year, include the difference as part of your non-capital (i.e. business) losses for the year. These losses can be carried back 3 years and carry forward for 20 years. However, on the 11th year the non-capital loss will become a net capital loss.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.