Business Investment Loss-Denied

In a Tax Court of Canada case, a mother had guaranteed the business loans for her son’s corporation. Unfortunately, the corporation failed and subsequently the mother paid off the loans. The mother claimed business investment losses for the amounts repaid.

Her only motivation for the guarantee was to assist her son’s business. She did not charge a guarantee fee and thus there was no possibility of investment income.

The Tax Court disallowed the business investment losses for the mother because she did not make the loan guarantees to earn income.

Solution- Charge an annual fee.