John, a very wealthy investor always on the look out for investment opportunities, reunites with two of his best high school friends, Jack and Jill, at a recent 25-year reunion. John is considering investing $200,000 into each of Jack and Jill's private companies for a 20% share in each company. The time horizon of each investment is estimated to be about five years. Jack moved to Seattle soon after high school graduation and has been living and working there. He operates Risky Venture A Ltd., a volatile business in Seattle with some good years and some bad. John thinks this investment has a 50- 50 chance of either significant upside or downside. Jill operates Slow and Steady Venture B Ltd., a local food processing business that is Canadian owned and operated. Jill's business has been earning a steady 8% annual return for the last 15 years. Jill draws a small salary and keeps the profits in the company in very safe investments, such as government bonds and blue-chip stocks. Normally, John would not be interested in such a slow growth business but on hearing that Slow and Steady Venture B Ltd. is expanding into real estate speculation, which is expected to be quite profitable, John decides to take a chance in investing in Jill's business. Required: If John suffers a loss in his investments in Risky Venture A Ltd. or Slow and Steady Venture B Ltd., what income tax considerations should he be mindful of? John is not interested in any financial or business advice. John, a very wealthy investor always on the look out for investment opportunities, reunites with two of his best high school friends, Jack and Jill, at a recent 25-year reunion. John is considering investing $200,000 into each of Jack and Jill's private companies for a 20% share in each company. The time horizon of each investment is estimated to be about five years. Jack moved to Seattle soon after high school graduation and has been living and working there. He operates Risky Venture A Ltd., a volatile business in Seattle with some good years and some bad. John thinks this investment has a 50- 50 chance of either significant upside or downside. Jill operates Slow and Steady Venture B Ltd., a local food processing business that is Canadian owned and operated. Jill's business has been earning a steady 8% annual return for the last 15 years. Jill draws a small salary and keeps the profits in the company in very safe investments, such as government bonds and blue-chip stocks. Normally, John would not be interested in such a slow growth business but on hearing that Slow and Steady Venture B Ltd. is expanding into real estate speculation, which is expected to be quite profitable, John decides to take a chance in investing in Jill's business. Required: If John suffers a loss in his investments in Risky Venture A Ltd. or Slow and Steady Venture B Ltd., what income tax considerations should he be mindful of? John is not interested in any financial or business advice
