Income From a Business or Property

Question 1

Define: Income From A Business

Answer 1

Subsection 248 (1) Defines “Business” as a profession, calling, trade, manufacture or undertaking of any kind whatever and an Adventure or concern in the nature of trade

Active income

Question 2

Define: Income From A Property

Answer 2

Subsection 248 (1) Defines “Property” to include dividends, interest, rent and royalties, a right of any kind, a choice in action and money

Passive income

Question 3

Factors To Assess Intention: Of Distinction Between Business Income and Capital Gains

Answer 3

Relationship of the transaction to the taxpayer’s business
Nature of assets involved
Number and frequency of transactions
Length of the period of ownership
Supplemental work on property
Circumstances that caused the disposition
Corporate objects or agreements

Question 4

Real Estate Distinction Between Business Income and Capital Gains

Answer 4

Feasibility of taxpayer’s stated intention
Geographic location and zoned use of real estate
Extent to which stated intention was carried out by taxpayer
Evidence of a change in stated intention after Purchase
did you change mailing, drivers license
Extent to which borrowed money was used to finance acquisition and terms of financing
Factors which motivated the sale

Question 5

Residential Property Flipping Rule

Answer 5

profits arising from the disposition of residential property (including rental property) that was owned for less than 12 months would be deemed to be business income

Question 6

3 Situations in which the deduction or reserves is allowed

Answer 6

Goods or Services rendered after year end (ITA 12(1)(a) and 20(l)(m))
Instalment Sales (ITA (12(1)(b)) and 20(1)(n))
Doubtful Account/Bad Debt (ITA (20(1)(l)) and 20(1)(p)
Any reserve claimed must be added back to income in the following year and a new reserve can be deducted, if applicable

Question 7

Exemption to outlays of a capital nature not being deductible from income

Answer 7

CCA
Interest Expense
Expenses incurred to issue shares etc.

Question 8

Limits the deduction available to a taxpayer in respect of an allowance for use of automobile

Answer 8

68 cents up to 5,000 km
= 62 cents thereafter

Question 9

Advertising is only deductible in 3 cases:

Answer 9

“Canadian issue of a Canadian newspaper or periodical or broadcasting”

Question 10

Permits the deduction of 20% of expenses (legal, accounting fee, printing and advertising, valuation etc.) incurred by:

Answer 10

A unit trust in course of selling units
Partnership/syndicate in course of selling interest
Corporation in course of issuing / selling shares

Question 11

ALLOWABLE DEDUCTIONS
Landscaping Costs

Answer 11

is deductible if building is used primarily for gaining or producing income from a business

Question 12

ALLOWABLE DEDUCTIONS
Home Office

Answer 12

Restricts the deduction of home office expenses in arriving at income from business except when
Home office is:
Individual’s principal place of business;
or
Used exclusively for purpose of earning income & used on regular & continuing basis for meeting clients, customers & patients.

Question 13

ALLOWABLE DEDUCTIONS
Meals and Entertainment

Answer 13

Exceptions to 50% limitation:
Cost to restaurant, hotel or airline of providing meals to customers in ordinary course of business
Meals or entertainment for event to benefit charity
Meals and recreation for general benefit of all employees (max. 6 events/year)
Meals and entertainment included as taxable benefit to employee or where employer is reimbursed for cost

Question 14

Max vehicle cost to be deducted

Answer 14

Vehicle cost limited to $36,000 + HST
Lease cost limited to $950 + HST per month
Interest cost limited to $300 per month