Table of Contents
- 🧩 Allowable Business Investment Losses (ABIL) — Why They’re Hard to Claim (Beginner-Friendly Guide)
- 🌟 General Review of ABIL Rules — What Every Personal Tax Preparer Must Know
- 💼 Common Scenarios Where an ABIL Can Be Claimed — Beginner’s Guide for Tax Preparers
- 📝 Claiming ABIL on the T1 Return & Electing Under Section 50-1 of the ITA
- 🛡️ Surviving a CRA Audit & Best Practices When Claiming an ABIL
🧩 Allowable Business Investment Losses (ABIL) — Why They’re Hard to Claim (Beginner-Friendly Guide)
Allowable Business Investment Losses—often called ABILs—are one of the most misunderstood and heavily challenged areas in Canadian personal tax. If you’re a new tax preparer, this topic may seem intimidating… and honestly, you’re not wrong! ABILs are complex, frequently audited, and often denied if not documented perfectly.
But this guide breaks everything down in simple terms, with practical examples and checklists. By the end, you’ll understand:
- What an ABIL is
- Why ABILs are so hard to claim
- What CRA looks for
- Why ABILs trigger audits
- Common real-world scenarios you will see as a tax preparer
- How to prepare clients properly so their claim doesn’t get denied
📌 What Is an ABIL (Allowable Business Investment Loss)?
An ABIL is a special type of capital loss that comes from:
👉 Investing in a small business corporation, either by
- Buying shares, or
- Lending money to the corporation
If that business fails, you may be able to claim an ABIL.
📘 Why “ABIL” Is Special
Most capital losses can only offset capital gains.
BUT an ABIL is different:
🟢 You can deduct it against all other kinds of income, including:
- Employment income
- Business income
- Interest income
- Rental income
🔵 Only 50% of the business investment loss is deductible — this is the “allowable” part.
🚨 Why Are ABILs So Challenging to Claim?
ABILs are one of the most heavily reviewed and litigated tax items in Canada. CRA audits almost every ABIL claim over $10,000.
Here’s why.
⚠️ 1. CRA Believes Most ABIL Claims Are Invalid
ABIL rules are strict. CRA wants proof that:
- The corporation was a Small Business Corporation (SBC)
- The investment was genuine, not a disguised gift or related-party favour
- The business is actually insolvent, bankrupt, or has ceased operations
- The loss is real and final, not temporary
- The taxpayer expected to earn income from the investment (wasn’t just helping family)
CRA denies about 90% of doubtful claims because taxpayers lack proper evidence.
⚠️ 2. ABIL Requires Both Corporate & Personal Tax Knowledge
Although the loss is claimed on a personal tax return, determining whether it qualifies is actually a corporate law and corporate tax analysis.
New tax preparers often miss these requirements:
✔ Was the company really a Small Business Corporation?
✔ Were proper share certificates issued?
✔ Was the loan properly structured?
✔ Does documentation prove the investment was valid and enforceable?
⚠️ 3. High Risk of Abuse
Many people attempt ABIL claims in these situations:
- Investor “lends” money to a child’s corporation
- No promissory note exists
- No expectation of repayment
- Company was not a qualifying SBC
- Records are incomplete
- The “loan” was actually a gift
CRA sees these constantly — most get denied.
⚠️ 4. ABIL Is Final — It Can’t Be Undone Later
Once an ABIL is claimed, CRA wants solid proof because:
- It becomes part of a taxpayer’s non-capital loss pool
- It can reduce income for future tax years
- It may affect estate planning and business planning
Because it has long-term tax impact, CRA examines it closely.
📂 What CRA Usually Asks For (Be Prepared!)
If your client claims an ABIL, expect CRA to request the following:
📄 For Shares
- Share certificates
- Subscription agreements
- Corporate minute book records
- Evidence business was a Small Business Corporation
- Proof the shares became worthless
🧾 For Loans
- Signed loan agreements/promissory notes
- Repayment terms
- Interest terms
- Proof loaned funds were actually used in the business
- Proof the corporation is bankrupt/insolvent
🏚️ To prove business failure
- Bankruptcy documents
- Asset sale records
- Closure notices
- CRA correspondence showing the business has ceased operations
Without these documents, the ABIL will almost always be denied.
📘 Why ABILs Trigger Audits Almost Automatically
CRA has publicly stated that ABILs are an “audit flag.”
Claims over $10,000–$15,000 are almost guaranteed to be reviewed.
This is because:
- ABILs reduce tax significantly
- Many are incorrectly claimed
- Many involve related-party transactions (parents → children, friends → business)
Expect 90% likelihood of CRA review for any meaningful ABIL.
💡 Real-World Scenarios You Will See as a Tax Preparer
These situations are very common—and often denied:
👪 1. Parents lending money to their child’s corporation
Example:
Mom and Dad “lend” $100,000 to help their child start a restaurant.
👉 Problem:
- No loan document
- No repayment terms
- Loan was not made for the purpose of earning income
- CRA considers it a gift
❌ Most of these ABIL claims get denied.
🏢 2. Shareholder invests money in their own small corporation that later fails
This is a legitimate scenario if documented properly.
CRA still requires proof:
✔ SBC status
✔ Share certificates
✔ Evidence of insolvency
✔ Proof investment became worthless
💼 3. Business owners invest in another owner’s corporation
Example:
Two entrepreneurs invest in each other’s companies.
These may qualify IF:
- Money was invested for income purposes
- Proper agreements were signed
- Corporation meets SBC rules
⚰️ 4. The corporation simply “stopped operating” — but no bankruptcy
This is the trickiest.
CRA does not allow ABIL just because the business closed.
You must prove:
- No assets left
- No ongoing business activity
- No reasonable chance of repayment
- No share value remaining
🧠 Pro Tax Tip Box
💡 ABIL is not a simple deduction — it’s a legal argument.
Every ABIL claim needs evidence, documentation, and ideally a tax practitioner who understands corporate structure.
📝 How an ABIL Is Reported on the Tax Return
If the investment meets all conditions:
- The full loss goes on Schedule 3
- Only 50% is allowed
- It becomes an ABIL
- It flows to line 21700
- If unused, it becomes a non-capital loss carried forward/back
Reporting is easy — qualifying the loss is the hard part.
📚 Summary: What You MUST Remember as a New Tax Preparer
✔ ABILs are one of the most audited and denied claims in Canada
✔ Requires both personal and corporate tax knowledge
✔ CRA disallows most claims due to poor documentation
✔ Never file an ABIL without checking SBC status & documentation
✔ Expect CRA to contact you within months of filing
✔ Reporting is simple — proving eligibility is complex
✔ ABIL claims must be backed by strong, complete paperwork
⭐ Final Tip
Most ABIL claims fail because taxpayers treat business investments casually.
Your job as a tax preparer is to ensure formality, evidence, and documentation at every step.
🌟 General Review of ABIL Rules — What Every Personal Tax Preparer Must Know
Allowable Business Investment Losses (ABILs) are one of the most powerful—yet most complicated—deductions in Canadian personal tax. As a tax preparer, understanding the core rules, qualifying criteria, and tax implications is essential. This guide breaks the topic down into simple, beginner-friendly language (with plenty of visuals) so you can confidently handle ABIL situations for clients.
🧠 What Exactly Is an ABIL?
An Allowable Business Investment Loss is a special type of capital loss that arises when a taxpayer invests in a Canadian small business corporation, and that investment becomes worthless.
🟦 It can come from:
- ❗ Selling shares of a small business corporation at a loss
- ❗ Lending money to a corporation and not getting it back
🟩 Why ABIL is special:
Unlike normal capital losses (usable only against capital gains), an ABIL is 50% deductible against any type of income, including:
- Employment income
- Business income
- Rental income
- Interest income
This makes ABILs extremely valuable—if they qualify.
💰 How ABILs Are Calculated
ABILs follow the same structure as capital gains/losses:
| Type | Inclusion Rate | Deductible Against |
|---|---|---|
| Capital Loss | 50% | Only Capital Gains |
| Business Investment Loss | — | — |
| ABIL (50% of BIL) | 50% | All income types |
🔍 Formula:
If you lose $40,000 on an investment in a qualifying corporation:
➡️ Only 50% = $20,000 ABIL
➡️ Deductible against all types of income
📆 Carryforward Rules for ABIL
ABILs have special time rules:
⏳ First 10 years
✔ Can be deducted against all sources of income
✔ If unused → remains an ABIL
⏩ After 10 years
🔁 The unused ABIL becomes a capital loss
✔ Capital losses carry forward indefinitely
✔ Usable only against capital gains
⚰️ In the year of death
Capital losses turn back into non-capital losses, usable against all income.
🔍 Important — ABIL Can Be Reduced by Capital Gains Exemption
If a taxpayer previously used the Lifetime Capital Gains Exemption (LCGE), it may reduce the ABIL they can claim.
📝 Why?
Both benefits relate to small business corporation shares, and the law prevents taxpayers from stacking these incentives unfairly.
🧱 Where Do ABILs Come From?
Two main sources:
🆔 1. Shares of a Canadian-Controlled Private Corporation (CCPC)
This includes shares the taxpayer:
- Originally purchased
- Received when investing in the startup
- Sold at a loss
- Cannot sell because the corporation failed
💵 2. Debt Owing to the Taxpayer by a CCPC
If someone lends money to a corporation and can’t recover it, the unpaid loan may qualify as a Business Investment Loss.
🧩 Four Mandatory Qualifiers for ABIL
To claim an ABIL, the following four conditions MUST be met. CRA does not compromise on these.
🟦 1. The loss must come from shares or debt of a CCPC
A Canadian-Controlled Private Corporation is:
- Privately owned
- Controlled by Canadian residents
- Not publicly listed
📘 Tax preparer tip:
Always confirm CCPC status—look at shareholder registers, minutes, and tax filings.
🟦 2. The corporation must be a Small Business Corporation (SBC)
This means the business must earn active business income.
✔ Examples of active businesses:
- Restaurants
- Retail stores
- Manufacturing
- Trades
- Professional practices
❌ Does not include corporations earning:
- Rental income
- Passive investment income
- Portfolio income
- Personal service business income
📉 Important:
Share losses from real estate corporations do NOT qualify for ABIL.
🟦 3. If the investment was a loan, interest must have been charged
CRA requires proof that:
- There was a real expectation of income, and
- The loan was a real investment, not a gift
📌 Notes:
- Interest does not need to be paid (company may be insolvent)
- But the loan agreement must show interest was owed
🟥 Exception:
If the lender is a shareholder, interest is not mandatory because shareholders can earn income through dividends instead.
🟦 4. The shares or debt must be disposed of — or deemed disposed of
You cannot claim an ABIL unless the investment is:
- Sold
- Written off
- Proven worthless
- OR deemed disposed of using special tax elections
📝 The most common tool:
🔹 Section 50(1) Election
This allows taxpayers to claim a loss even when the corporation is insolvent and shares cannot be sold.
🔒 CRA’s Two-Part Test: Qualify + Prove It
CRA requires:
1️⃣ The ABIL must meet all four qualifiers
AND
2️⃣ You must prove it with documentation
Clients often meet the rules but fail to document them properly, leading CRA to deny the ABIL.
📦 What Documentation Does CRA Expect?
📄 For Share Investments
- Share purchase agreements
- Share certificates
- Corporate minute book
- Proof of CCPC status
- Evidence shares became worthless
🧾 For Loans
- Signed loan agreement
- Interest terms
- Promissory notes
- Evidence business used the loan
- Evidence of insolvency
🏚️ For Business Failure
- Bankruptcy documents
- Final tax returns
- Letters showing the business ceased operations
- Proof of asset liquidation
Without documentation, CRA will almost always deny the claim.
🔥 Special Notes for New Tax Preparers
🟣 ABILs are high-risk audit items
Expect CRA review for any ABIL over $10,000–$15,000.
🟠 ABILs are heavily litigated
Over 240+ tax court cases exist on this topic.
🟡 ABIL reporting is simple — qualifying is complex
Most of your work involves gathering and verifying proof.
📘 Quick Reference Box — The Four ABIL Qualifiers
💼 Must be CCPC shares or loans
🏭 Must be active business (not rental/investment)
💲 Loan must charge interest (except shareholders)
📉 Investment must be disposed of or deemed disposed of
👍 Final Thoughts for New Tax Preparers
ABILs are one of the most valuable deductions in the tax system but also one of the most difficult to claim correctly. Your job is not just completing the tax form—it’s ensuring the investment truly qualifies and is properly documented.
A skilled tax preparer can save clients thousands, but only with a strong understanding of these rules.
💼 Common Scenarios Where an ABIL Can Be Claimed — Beginner’s Guide for Tax Preparers
Allowable Business Investment Losses (ABILs) are one of the most valuable personal tax deductions, but also one of the most complex. As a tax preparer, it’s important to know where ABILs typically arise, so you can spot opportunities for your clients—and avoid costly mistakes. This guide explains the most common real-world scenarios where ABILs may be claimed, with practical tips, examples, and documentation considerations.
🟢 1. Investments in Corporations That Become Insolvent
One of the most frequent ABIL scenarios involves:
- Buying shares in a corporation
- Lending money to a corporation
When the corporation fails or becomes insolvent, the investor may claim an ABIL for the lost investment.
Example:
- A client invests $50,000 as an angel investor in a small startup.
- The startup closes after two years, and the shares are now worthless.
- The client may be eligible to claim 50% of the loss against all types of income, provided the investment qualifies as a CCPC share or shareholder loan.
💡 Pro Tip: Always confirm CCPC status and that the business was actively operating (not a passive investment) before claiming ABIL.
🟢 2. Investments in Family or Friends’ Small Businesses
Many small businesses are funded by family or friends through:
- Share purchases
- Loans to the business
If the business fails and repayment is impossible, these losses can qualify as an ABIL.
Example:
- Parents invest $20,000 in their child’s small business.
- The business closes and cannot repay the investment.
- Parents may claim an ABIL—but only if:
- The business qualifies as a CCPC
- The investment meets all ABIL qualifiers
- Proper documentation exists
💡 Note: Investments in family businesses are heavily scrutinized by CRA. Documentation and proof of intent to earn income are essential.
🟢 3. Owner-Manager Investments in Their Own Corporation
Perhaps the most common ABIL scenario for small practitioners involves owner-managers:
- They invest personal funds to start or maintain a corporation
- They may purchase shares or lend personal money to the business
- The business ultimately fails and funds cannot be recovered
Key Points:
- The investment must be in a CCPC with active business income
- Loans must document interest owed (even if unpaid)
- Shares or loans must be disposed of or deemed disposed of via a Section 50(1) election
📝 Tax preparer tip: Owner-managers often overlook ABIL claims, but with proper guidance and documentation, this is an opportunity to save significant taxes.
🟢 4. Victims of Scams or Fraudulent Businesses
If a client invests in a corporation that turns out to be fraudulent, it may be possible to claim an ABIL—if proof exists:
- Police or legal reports verifying the fraud
- Bank statements showing the investment
- Correspondence with the company confirming the loss
⚠️ Caution: Documentation is crucial. Without it, CRA will likely deny the ABIL. Fraud cases are technically allowed, but proving them is challenging.
🟢 5. Investment Clubs or Corporations That Invest in Small Businesses
Some clients invest indirectly through investment corporations or clubs:
- The corporation collects funds from multiple investors
- It invests in various small businesses (e.g., tech startups, restaurants, cafes)
- If one of those businesses fails, investors may be eligible for ABIL
❌ Note: ABILs do not apply to investments in:
- Publicly traded securities
- Real estate companies
- Passive portfolio investments
💡 Tip: Always trace the investment to a qualifying small business to determine ABIL eligibility.
🟢 6. Payments Made to Cover CRA Liabilities of a Corporation
In some cases, shareholders may pay corporation liabilities such as:
- GST/HST
- Payroll taxes
- Other CRA obligations
If these payments are made because the corporation cannot pay, they may be considered an ABIL, because funds were directly used to support the business.
Example:
- A director pays $15,000 in unpaid payroll taxes for a corporation.
- The corporation becomes insolvent and cannot repay.
- The director may claim an ABIL for the amount paid, with proper documentation.
⚠️ Important: These situations are complex and may require a tax lawyer or senior review.
📦 Documentation Checklist for Common ABIL Scenarios
For any ABIL claim, ensure the following is available:
✅ Proof of investment (share certificates, loan agreements)
✅ Corporate status (CCPC confirmation, minute books)
✅ Evidence of active business operations
✅ Proof of insolvency or failed business
✅ Interest terms for loans (if applicable)
✅ Section 50(1) elections for deemed dispositions
✅ Any additional correspondence, legal, or CRA documentation
💡 Pro Tip: Keep a separate folder for each client’s ABIL documentation—it’s your best defense during a CRA audit.
💡 Key Takeaways for Tax Preparers
- ABILs arise in specific, common scenarios:
- Corporate insolvency
- Family or friends’ businesses
- Owner-manager losses
- Fraudulent investments
- Investment clubs investing in small businesses
- Payment of corporate liabilities
- Documentation is everything—without proof, CRA will deny the claim.
- ABILs can provide significant tax savings, but require careful verification.
- Always confirm CCPC status, active business, and qualifying loss before claiming.
⭐ Pro Tip Box:
“ABILs are often overlooked by taxpayers, but as a tax preparer, you can become a hero for your clients by spotting these opportunities—provided you gather and verify the proper documentation!”
📝 Claiming ABIL on the T1 Return & Electing Under Section 50-1 of the ITA
Claiming an Allowable Business Investment Loss (ABIL) on a personal tax return may seem straightforward, but there are critical nuances that every tax preparer must understand—especially when dealing with owner-managed businesses or investments that cannot be sold. This section breaks it down step-by-step with examples, practical tips, and guidance on the Section 50-1 (subsection 51) election, so you can confidently prepare ABIL claims for clients.
💼 1. How ABIL Is Claimed on the T1 Return
An ABIL is claimed much like a capital loss, but with the key difference that it can offset all sources of income, not just capital gains.
Step-by-Step Process:
- Calculate the Loss
- Determine the original investment amount (shares purchased or loaned)
- Deduct any amount recovered (sale proceeds, partial repayment)
- Include related expenses, e.g., legal fees or consulting fees directly linked to the investment
- Share purchase: $125,000
- Amount recovered: $10,000
- Legal & consulting fees: $2,985
- Total ABIL: $117,985
- 50% deductible: $58,993
- Enter on the T1 Return
- Line 21700: Enter the allowable portion of the ABIL (50% of total loss)
- Box 21699: Enter the gross loss (full amount before 50% deduction)
- Software Assistance
Most tax preparation software includes an ABIL worksheet, which calculates the loss and generates the appropriate entries for the T1 return automatically.
💡 Pro Tip: ABILs can reduce net income, which affects other credits and deductions, so accuracy is essential.
⚠️ 2. When the Shares or Loans Cannot Be Sold
In some cases, such as sole shareholder situations or insolvent corporations, the investment cannot be sold to a third party. In these cases, a special election is needed to claim the ABIL.
Section 50-1 Election (Subsection 51 Election)
This election is a deemed disposition that allows the taxpayer to claim a loss even if the shares or debt are unsellable.
How It Works:
- Deem the proceeds to be zero
- The shares or loans are treated as sold for $0
- Immediately reacquire the property for $0
- If the corporation revives in the future, the taxpayer can realize a capital gain based on this new cost base
Example:
- Shareholder Enzo invests:
- $1,000 in shares
- $125,000 as shareholder loan
- Corporation fails; shares and loan cannot be sold
- Section 50-1 election:
- Disposition proceeds = $0
- Cost base reset to $0
- ABIL can now be claimed for $63,000 (50% of combined loss)
💡 Key Point: Without this election, CRA may deny the ABIL or challenge the claim.
🕒 3. Timing and Filing of the Election
- Must be filed in the year the loss occurs
- If the election is missed, CRA may accept a late election, but penalties could apply
- Election is not on a prescribed form—it is a free-form letter submitted to your local Tax Services Office
Contents of a Section 50-1 Election Letter:
- Taxpayer’s SIN and address
- Description of shares or debt
- Cost base of shares or loan
- Election statement: “I hereby elect under Section 51 of the Income Tax Act to dispose of my shares/debt in [Corporation Name] for proceeds of $0.”
- Signature and date
📌 Pro Tip: Keep a copy of the letter for your client’s files in case CRA audits the return.
🧾 4. Documentation Required
Even after filing the election, CRA may request documentation to verify the ABIL:
✅ Purchase documents for shares or loans
✅ Evidence of corporation insolvency or cessation
✅ Legal or consulting fees associated with the investment
✅ Evidence of inability to sell or collect the debt
✅ Proof that the investment was in a CCPC and qualified as an active business
💡 Tip: Good documentation is often the difference between a successful ABIL claim and a denial during an audit.
📌 5. Best Practices for Personal Tax Preparers
- Always confirm CCPC status and active business income
- Calculate the gross loss first, then determine the allowable 50% deduction
- File the Section 50-1 election for unsellable shares or loans
- Keep meticulous documentation of all transactions, legal fees, and communications
- Check timing carefully—claims must be made in the year the loss is realized
🌟 Quick ABIL T1 Claim Checklist
| Step | Action |
|---|---|
| 1 | Calculate total loss (investment + fees – proceeds recovered) |
| 2 | Determine 50% allowable deduction |
| 3 | Enter gross and allowable amounts on T1 (Lines 21699 & 21700) |
| 4 | Make Section 50-1 election if shares/debt cannot be sold |
| 5 | Gather supporting documentation (CCPC proof, insolvency, fees, legal agreements) |
| 6 | File election letter to local Tax Services Office |
| 7 | Keep copies for audit defense |
💡 Final Tip:
Claiming an ABIL is straightforward if the investment was sold, but Section 50-1 elections are essential when shares or loans are unsellable. Proper planning, careful calculation, and complete documentation will protect your clients and ensure their ABIL claim survives CRA scrutiny.
🛡️ Surviving a CRA Audit & Best Practices When Claiming an ABIL
Claiming an Allowable Business Investment Loss (ABIL) can be a powerful way to reduce your client’s taxable income, but it is also one of the most scrutinized areas by the Canada Revenue Agency (CRA). Proper preparation, meticulous documentation, and understanding the CRA’s expectations are critical for success. This section is your ultimate guide to avoiding audit pitfalls and ensuring your client’s ABIL claim is accepted.
📑 1. Documentation: The Foundation of a Successful ABIL Claim
The CRA will ask for proof of every transaction related to the ABIL. Here’s what you need to prepare:
✅ For Shares
- Share certificates showing ownership
- Proof of payment: canceled checks, bank transfers, or receipts
- Purchase & Sale Agreements if transactions occurred between shareholders
- Contracts of acquisition if applicable
✅ For Loans or Debts
- Loan agreements outlining principal and interest
- Proof of funds transferred into the corporation
- Bank statements or canceled checks confirming deposits
💡 Pro Tip: For owner-managers who invest over multiple transactions or years, a general ledger of the shareholder account is essential to demonstrate net contributions and repayments.
🏢 2. Dealing with Bankrupt or Dissolved Corporations
When a corporation has failed or ceased operations, ABIL claims require extra diligence:
- Lawyer or accountant documentation from the corporation
- List of creditors and proof of claims submitted to the trustee
- Final balance sheet showing shareholder account balances
- General ledger showing all transactions leading to the final balance
- Certificate of dissolution and director resolutions to formally cease operations
💡 Tip: Filing ABIL documentation early—ideally during the operation of the corporation—makes it easier to assemble proof if the company later fails.
👪 3. Special Considerations: Family Loans
Loans from family members can be tricky:
- Must have a formal loan agreement
- Should include interest payable, even if unpaid due to insolvency
- Non-interest bearing loans to family often result in ABIL being disallowed
⚠️ Note: Unlike loans to owner-managers, the CRA requires a clear income-earning connection for family loans. Proper documentation is non-negotiable.
🔑 4. Best Practices to Avoid CRA Issues
- Organize Documentation Early
- Maintain records of shares purchased, loans advanced, and all related expenses
- Keep copies of all canceled checks, bank transfers, and agreements
- Track Shareholder Accounts Continuously
- Regularly update general ledger and account balances
- Track repayments, drawings, and other transactions
- Formalize Family Loans
- Use written agreements and include interest terms
- Have a lawyer draft or review documents
- Follow Proper Corporate Wind-Up Procedures
- Dissolve the corporation formally
- Maintain final balance sheet and financial statements
- Retain articles of dissolution and final corporate tax return
- Prepare a Permanent File
- Keep all records organized in one location
- Ensure you can produce evidence quickly if CRA audits the ABIL
📝 5. CRA Review Process: What to Expect
During an audit, CRA will typically request:
- Share certificates and proof of share purchases
- Loan agreements and evidence of funds transferred
- Corporate general ledgers for owner-managed businesses
- Documentation from legal or accounting professionals for bankrupt corporations
- Proof of corporate dissolution and final financial statements
💡 Pro Tip: Well-prepared documentation often allows smooth approval at the first review level, reducing audit stress and the chance of disputes.
📌 6. Quick ABIL Audit Survival Checklist
| Step | Documentation / Action |
|---|---|
| 1 | Share certificates and proof of purchase |
| 2 | Loan agreements and proof of funds transferred |
| 3 | General ledger and shareholder account balances |
| 4 | Corporate final balance sheet and financial statements |
| 5 | Articles of dissolution and director resolutions |
| 6 | Evidence of interest payable on loans, if applicable |
| 7 | Organize all records in a permanent file |
🌟 Key Takeaways
- Early preparation saves headaches later—start documenting investments from day one.
- Interest-bearing loans are essential for family or non-arm’s length transactions.
- Dissolution and wind-up procedures strengthen the ABIL claim.
- Complete documentation is the single most important factor in surviving CRA scrutiny.
By following these best practices, you ensure your client’s ABIL claim is audit-ready, minimizing the risk of disallowance and maximizing the tax benefit.
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