Dear Uncle Bean:

For many, many years, my husband and I owned a small candle store in down town Calgary.  We used a corporation for the business.  Due to the economic downturn, we ended up having to close the shop when the lease ran out.  To be honest, we are happier now without the burden of having to keep the thing going.  The bad thing is that we lost a fair bit of money.

Can you suggest any ways that we can use this loss in the future on our taxes?




Dear Disappointed:

Sorry to hear of your loss.  It is always hard to give up on a dream.

There are a number of ways that you can apply the losses from the failed candle store against other income.  The three primary ways are as follows:

  1. If the candle store was just one part of many business adventures within the corporation, then you can apply the loss against another division or business that is making money to reduce your overall tax bill. So if your husband used the corporation for his consulting business or auto repair business, the candle store losses can be applied against the income from the successful business to reduce the overall tax situation.
  2. If the candle store is the only business inside of the corporation, then you might be able to apply the loss against any one of the three prior years where you made money and paid taxes. The Canadian tax act allows you to apply a loss in 2017 against income made in 2014, 2015 or 2016.  So you might be able to do this to recover some tax dollars.
  3. The last option available to you is something called an Allowable Business Investment Loss (ABIL). In your case, this would be available if the corporation was dissolved by either a government body or yourself.  This loss is claimed on your personal income tax return.  The amount you can claim is ½ the amount that you lost in the business.  The nice thing about this loss is that it can be claimed against all types of other income.

So those are your three choices for dealing with your loss and recovering some money.

Probably the big thing to remember is that this strategy is not going to recover all of the money that you lost.  It simply allows you to recover any taxes you paid when the company was making money.  In short, it usually amounts to a pretty small portion of the loss.

Uncle Bean