1. Income from Business Sec 9-37.3
Lesson 3
Income from Business
Sec

2. Definition of Business
248(1)
Includes a profession, calling,trade,manufacture or undertaking of any kind whatever except for 18(2) an adventure or concern in the nature of trade but does not include an office or employment

3. Adventure in Nature of Trade
Constitutes a business if
1) taxpayer deals with property the same way that a dealer of such property would deal
2)Nature and Quantity of property excludes the possibility that it’s sales was the realization of an investment
3) Taxpayers intention

4. Reasonable expectation of Profit
Usually applicable to part time business
Where individuals will often pursue a hobby business for personal enjoyment
Expenses each year exceed revenues and the losses are applied against other sources of income
CRA reviews areas like money invested and time spent in the business

5. Business Income versus Employment Income
Control test Integration and organization test I.e. is the individual an integral part of the business Economic test risk of profit/loss Specific results test(corporation has contracted with the individual for a specific result

6. Business Income versus Capital gain
Length of time Asset held
Frequency of transaction
Nature of transaction
Expertise of the individual
Taxpayers intent

7. Accounting Income to Net Business Income for Tax purposes
Inclusions
Section 9 ,profit from the business
Section 10,Inventory valuation
Section 11, Proprietorships
Section Income inclusions, all amounts receivable
Deductions
Section 18,19, Non deductible expenses
Section 20 Deductions specifically permitted

8. Section 9
9(1) Taxpayers income for a taxation year from a business is his profit
No definition of profit
9(3) excludes capital gains as income from business.

9. Specific Inclusions 12(1)(a) Services to be rendered in future
12(1)(b) any amounts receivable for services rendered
12(1)(d)(e) reserves-bad debts and warranties
Note reserves can be claimed under 20(1) for doubtful accounts and for amounts not due until later
12(1)(f) Insurance proceeds-depreciable property

10. Specific Inclusions 12(1)(g) payments based on production or use
12(1)(i) Bad debts recovered
12(1)(c)(j)(k) Interest ,dividends
12(1)(l) Partnership income
12(1)(x) inducement payments, reimbursements

11. Limitations of deductions
Sec 18 must be laid out to earn income
18(1)(b) expenditure of a capital nature(asset has an enduring benefit)
18(1)h personal living expenses
18(1)(L) limitation re club dues
18(1)N Political contributions
18(12) restrictions on office in home
Can’t be used to create loss

12. Limitations of deductions
18(1)(r) restricted per km charge for 2014
54 cents first cents there after
If allowance included income no limitation on deduction

13. Deductions allowed 20(1)a Capital Cost allowance
20(1)b cumulative eligible capital
20(1) (c) (d) interest
20 (1) (e) financing expenses
20(1)(e2) premiums on life insurance policy used as collateral
20(1)I-P reserves
20(16) terminal loss
20(10) conventions limit of 2
Read page 4241 in book for all

14. Continued
SECTION , rules that apply if the business ceases to exist
Section ,Special situations that may apply
The four principle sections
9,12,18 and 20

15. Section 67 reasonableness
67.1 limits meals and promotion to 50%
67.2 CCA to 30,000
67.2(1) interest to 300 a month

16. Converting Accounting Income to net income for tax
Starting point net income per f/s (GAAP)
Add income excluded from Accounting income
Income inclusions section 12-17
Disallowed reserves
Non deductible expenses
Disallowed deductions section 18/19
Unreasonable amounts section 67

17. Converting Accounting Income to net income for tax
Less expenses specifically allowed section 20
Add or deduct capital gain or losses
NET INCOME FROM A BUSINESS FOR TAX PURPOSES