When a company or government needs to raise funds to purchase assets or implement programs they may wish to borrow money by issuing bonds or debentures. Generally speaking, a bond is an interest bearing debt issued that specifies the principal or face value of the bond and when interest will be paid to the bond holders. Interest is paid at a specified rate on a specified period.

Specifically bonds are secured against certain assets of the borrowing company. For example, a company may wish to purchase manufacturing equipment and can issue a bond that is secured to this equipment. If the company were to default on the bond (that is not pay interest), then the bondholders can order the equipment be sold to satisfy their debt. On the other hand, debentures are unsecured bonds.

Bonds and debentures will have a face value but may be bought or sold for more or less than their face value.

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A business investment loss (BIL) is a special kind of capital loss that happens when you sell or dispose of socks or debts of a Small Business Corporation (SBC) to a person at arms length. 

One-half of the BIL is called an Allowable Business Investment Loss (ABIL) and can be written off against any income. This is a little different from a standard capital loss (known as an allowable capital loss), that only permit losses to be applied against capital gains.

If you own the stocks of a SBC that is insolvent and no longer have a market value or own the debts that are considered a bad debt, you can elect to have your stocks or debt disposed of at nil value under s.50(1) to claim the ABIL. Under this provision, you are also considered to have re-acquired the stocks or debts at nil value at the end of the tax year.

Since you still retain ownership, you may be able to re-use the corporation for another purpose and recoup your investment. Of course, you will have to report and pay tax on the amount recovered.

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