Sources of income
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Sources of income
The following are considered as sources of income:
- Bad debts
- Vacation trips and awards
- Government grants and subsidies
- Surface rentals for petroleum or natural gas exploration
- Rental income
- Gift cards or certificates
- Barter transactions
- Selling a property
- Lottery prize commissions
If, during the year, you received any amount that you wrote off as a bad debt in a previous year, you have to include the amount in your income for the current year. For more information, see Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts.
There may be GST/HST implications on the recovery of bad debts. For more information, see guide Guide RC4022, General Information for GST/HST Registrants.
You have to bring any reserve you claimed in a previous year back into income the next year. The Income Tax Act lets you take a new reserve based on your circumstances at that time.
For more information, see Interpretation Bulletin IT-154, Special Reserves.
Vacation trips and awards
If you received vacation trips or other kinds of awards (such as jewellery or furniture) as a result of your business activities, you must include the value of these awards in your business income.
Vacation trips and awards may have GST/HST implications. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Government grants and subsidies
If you get a grant or subsidy from a government or government agency, you'll have to report it as income or as a reduction of an expense. Generally, a grant or subsidy:
- increases your income or reduces your expenses;
- relates to an income deficiency;
- relates to specific expenses.
For example, if you are a farmer and you received a payment to subsidize your income in a drought year, you would add the payment to your income. However, if you are a business which receives a government employment grant to hire more students, you would generally deduct it from the wage expense you are claiming.
Government assistance that enables you to acquire capital property does not increase your net income. However, for depreciable property, you reduce the capital cost of the property by the amount of the assistance received. For other capital property, reduce the adjusted cost base accordingly.
For more information, see Interpretation Bulletin IT-273, Government Assistance - General Comments.
Surface rentals for petroleum or natural gas exploration
If you have land that you usually use in your farming or business operation, and you are leasing it out for petroleum or natural gas exploration, you may have to include the leasing proceeds in your income as a capital receipt or as an income receipt.
For more detailed information, see Interpretation Bulletin IT-200, Surface Rentals and Farming Operations.
Rental income can be income from property or income from business. Income from rental operations is usually income from property.
Do not include rental income, whether from farm property or real estate, with your income from business or farming. You have to report it separately on your tax return.
For more information on rental income and how to report it, see Guide T4036, Rental Income.
Gift cards or certificates
A gift card or certificate is a monetary-equivalent (e.g.: voucher, receipt, ticket) that has a stated value and provides for payment of goods and services in the amount of the stated value.
If you sell gift cards or certificates, you must report, as business income, the amounts received from the sale on the date they are sold. A business may choose to calculate a reserve as a deduction against this income. A reserve is the amount of gift cards or certificates that you anticipate will be redeemed after the end of your fiscal year. A reserve amount that is deducted against business income in one year must be added back to business income the following year. It is your choice whether you calculate a reserve.
Do not collect GST/HST when a gift card or certificate is sold. When a customer uses a gift card or certificate as payment for a product or service, calculate the GST/HST on the total price of the item or service. Deduct the amount of the gift card or certificate from the amount the customer owes.
For more information, see Publication P-202, Gift Certificates or call us at 1-800-959-5525.
A barter transaction takes place when any two persons agree to exchange goods or services between them.
If you are involved in a barter transaction, the goods or services you received could be considered proceeds from a business operation.
If you are in a business or profession that provides goods or services, and you exchange these goods or services in a barter transaction, you have to include the value of the goods or services you exchanged in your income.
Barter transactions may also have GST/HST implications. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Selling a property
If you sell a capital property, you may have:
- a recovery of capital cost allowance, (known as recapture);
- an undepreciated balance in a class and no property remaining in that class (known as a terminal loss);
a capital gain of capital loss. For example, if you sell a capital property for more than it cost, you have a capital gain, and if you sell it for less than it cost, you have a capital loss.
Generally, you have a capital gain or a capital loss when you dispose of capital property. For example, if you sell a piece of land for more than it cost, you have a capital gain, and if you sell it for less than it cost, you have a capital loss.
There may be GST/HST implications when you sell a property. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Lottery Prize Commissions
Lottery ticket retailers who receive prize commissions from a provincial lottery corporation for selling winning tickets must report them as income.
This only applies to lottery prize commissions received on or after January 1, 2014. The CRA will not reassess retailers to include lottery prize commissions received prior to January 1, 2014.
For more information on payments to lottery ticket retailers, see What's new for small businesses and self-employed—Lottery prize commissions. If you need more information, call 1-800-959-5525.
Prizes received in relation to the purchase of a lottery tickets continue to be non-taxable for the winners in Canada.
Forms and publications
- Guide RC4022, General Information for GST/HST Registrants
- Guide T4003, Farming and Fishing Income
- Guide T4036, Rental Income
- Guide T4037, Capital Gains
- Publication P-202, Gift Certificates
- Interpretation Bulletin IT-154, Special Reserves
- Interpretation Bulletin IT-200, Surface Rentals and Farming Operations
- Interpretation Bulletin IT-273, Government Assistance - General Comments
- Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts
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