23 April 1999 External T.I. 9907135 - INCOME AND EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: whether a particular activity is a business

Position: Depends on the facts

Reasons: Examination of the facts will determine if there is a reasonable expectation of profit

XXXXXXXXXX 990713
J. E. Grisé
April 23, 1999

Dear XXXXXXXXXX:

Re: Income and Expenses

This is in reply to your letter of February 9 1999, requesting a ruling on your ability to declare income and expenses for advising your clients on financial planning.

The ruling you have requested seems to be in respect of completed or ongoing transactions. An advance income tax ruling can only be given in respect of proposed transactions. However, we offer the following comments which may be of assistance to you.

Section 9 of the Income Tax Act provides that a taxpayer’s income for a taxation year from a business (self-employment) is the profit therefrom for the year. The concept of profit is critical in determining whether a taxpayer’s activity or undertaking constitutes the carrying on of a business or is merely the furtherance of a hobby or interest of the taxpayer that is of a personal nature. Generally, any undertaking or activity of a taxpayer that results in profits or has a reasonable prospect of profits would be viewed as the carrying on of a business. On the other hand, where the activity or undertaking has no reasonable expectation of producing profits, a business would not be considered to have been carried on and any losses that resulted would not be deductible for income tax purposes.

Whether or not a taxpayer has a reasonable expectation of profit is an objective determination to be made from all the facts. The relevant factors to be considered in making such a determination will differ with the nature and extent of the activity or undertaking. Some of the factors which may be relevant in determining whether or not a taxpayer has a reasonable expectation of profit include:

• the amount of time devoted to the activity or undertaking,
• the amount of revenue from the activity or undertaking,
• the type of expenditures claimed and their relevance to the taxpayer’s endeavour,
• the taxpayer’s qualification in the particular field of endeavour,
• membership in any professional association relating to the undertaking, and
• a business plan relating to growth , promotion, etc.

No particular factor described above is more important than another and no one factor determines whether or not an activity is a business carried on for profit or with a reasonable expectation of profit. All relevant criteria are considered together in making a determination and a taxpayer’s failure to meet any one particular factor will not in itself preclude the taxpayer’s activities from qualifying as a business.

We hope our comments are helpful.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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