Do you have to have business income, to claim business expenses on your tax return? I have a registered business (sole proprietorship) that I *could* come up with some business expenses for, but have no actual business income. Can I use these expenses? And if I require income, is there a minimum amount I need to have?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Tax question
- Thread starter ShawnBoy
- Start date
ShawnBoy said:Do you have to have business income, to claim business expenses on your tax return? I have a registered business (sole proprietorship) that I *could* come up with some business expenses for, but have no actual business income. Can I use these expenses? And if I require income, is there a minimum amount I need to have?
I have not practised tax for a few years but do keep my nose in for purposes of preparing returns for family and close friends.
You do not have to have business income to claim expenses, but you do need to have a "reasonable expectation of profit"---e.g. income in the near future, else CRA might challenge and deny the losses, along with asking for the tax back, plus interest at pretty high rates (they are oh so nice).
Re: *could*---do you feel comfortable with the risk that if they dig into these expenses they might deny them, want the tax on them, plus interest and penalties (which, again, are quite high)? I understand that hobby businesses that are essentially tax deductions are a hotseat area for CRA. Can you say "red-flag"? take your case to a tax accountant and get thier advice. For your own sake stay away from H&R Blockheads.
What he said ^^^^
Coupled with my experience being self employed as well as operating a small business at the same time as being typically employed I'd say you could claim startup expenses (office lease, advertising, raw material costs, consutancy fees etc) but I am 100% positive they would disallow vehicle leasing (unless your business is related to the vehicle), entertainment expenses (unless they could be proved to be related to garnering business), business use of home expenses etc.
As stated you have to have a reasonable expectation of profit as well as a reasonable expectation of income (for eg: opening a palm tree farm in southern ontario wouldn't be considered a profitable business). Rev Can knows when people are using questionable expenses simply to offset income and believe me, they WILL catch you especially since our illustrious prime minister has stated publically that he will crack down on small businesses due to their questionable practises.
As you clearly stated in your post that you don't really have any expenses so you'd have to manufacture them to start with as well as manufacture any income or reasonable expectation of income. Pretty much you've said it is all BS to save tax money and Rev Can will see right through that.
Coupled with my experience being self employed as well as operating a small business at the same time as being typically employed I'd say you could claim startup expenses (office lease, advertising, raw material costs, consutancy fees etc) but I am 100% positive they would disallow vehicle leasing (unless your business is related to the vehicle), entertainment expenses (unless they could be proved to be related to garnering business), business use of home expenses etc.
As stated you have to have a reasonable expectation of profit as well as a reasonable expectation of income (for eg: opening a palm tree farm in southern ontario wouldn't be considered a profitable business). Rev Can knows when people are using questionable expenses simply to offset income and believe me, they WILL catch you especially since our illustrious prime minister has stated publically that he will crack down on small businesses due to their questionable practises.
As you clearly stated in your post that you don't really have any expenses so you'd have to manufacture them to start with as well as manufacture any income or reasonable expectation of income. Pretty much you've said it is all BS to save tax money and Rev Can will see right through that.
Well, the expenses I'm referring to are really business startup costs.. some equipment, printing materials, phone line, etc.. nothing terribly expensive really. I'm certainly not trying to rip off the Gov't, I was just curious as to whether I could claim these items and recoup the costs for them.
Just make a small profit in the years ahead...
...let 'em take a small quantity of business taxes off you and you'll be fine. Of course if you are claiming the Lamborghini and SPs against sales of an insignificant amount in your "off" years you will get audited.
ShawnBoy said:Well, the expenses I'm referring to are really business startup costs.. some equipment, printing materials, phone line, etc.. nothing terribly expensive really. I'm certainly not trying to rip off the Gov't, I was just curious as to whether I could claim these items and recoup the costs for them.
...let 'em take a small quantity of business taxes off you and you'll be fine. Of course if you are claiming the Lamborghini and SPs against sales of an insignificant amount in your "off" years you will get audited.
Some of you must be out of date when it comes to tax law!!! Yes, REOP was the proper test perhaps when you went through school but that is no longer the test.
The test of "reasonable expectation of profit" was effectively thrown out by the Supreme Court of Canada and has been replaced with a "reasonable expectation of cumulative profit" test in proposed section 3.1.
When there is no receipts but expenses, that means you have a loss. Whether you can deduct this loss for tax purposes depends on whether you satisfy the "reasonable expectation of cumulative profit" test which is to be determined objectively.
The test of "reasonable expectation of profit" was effectively thrown out by the Supreme Court of Canada and has been replaced with a "reasonable expectation of cumulative profit" test in proposed section 3.1.
When there is no receipts but expenses, that means you have a loss. Whether you can deduct this loss for tax purposes depends on whether you satisfy the "reasonable expectation of cumulative profit" test which is to be determined objectively.
scrooge said:Some of you must be out of date when it comes to tax law!!! Yes, REOP was the proper test perhaps when you went through school but that is no longer the test.
The test of "reasonable expectation of profit" was effectively thrown out by the Supreme Court of Canada and has been replaced with a "reasonable expectation of cumulative profit" test in proposed section 3.1.
When there is no receipts but expenses, that means you have a loss. Whether you can deduct this loss for tax purposes depends on whether you satisfy the "reasonable expectation of cumulative profit" test which is to be determined objectively.
Well, you learn something new everyday. So Mr Scrooge, would you mind explaining the difference? (not being sarcastic for once, really interested in knowing the difference). Whenever I get approached by someone official on stuff like this I say "hey, I'm a carpenter, not an accountant!".
tboy said:Well, you learn something new everyday. So Mr Scrooge, would you mind explaining the difference? (not being sarcastic for once, really interested in knowing the difference). Whenever I get approached by someone official on stuff like this I say "hey, I'm a carpenter, not an accountant!".
Instead of me paraphrasing it, try reading this??
REOP: http://www.fbc.ca/Keep_Current/Articles/articles11010201.asp
New REOP: http://www.calu.ca/publicationDetails.asp?x=&y=EAU-11272003-6113&i=221&d=1&z=
Thanks for posting that. If I read correctly it is Rev Can's answer to the supreme court's ruling that their REOP were not quite fair so they come up with REOCP which IMHO is even MORE unfair because it basically gives Rev Can the power to determine if your business ventures are reasonable not yourself. It also brings about the following: It doesn't matter if one expects to incur expenses one year for receive profits in the next. It seems that you're supposed to show profits in the year you are incurring expenses.
Sounds to me like Rev Can is doing all it can to make it harder and harder to do any business in Canada. From what I gather they want their tax money on any and all monies earned whether you had losses or not and if you dare CLAIM any losses those losses won't be determined by your financial records, Rev Can will determine whether those losses can be claimed or not.
Looks to me like this is a great way to drive the economy into the crapper.
it is funny however, that from what I have learned of how our economy works, it isn't necessarily profit that drives the economy, but transactions, revenue stream, etc. because a company can put money into our economy without necessarily making much (if any) profit.
Seems to me to be just another way for our illustrious Government to take MORE money out of the economy to spend on their wonderful $17.00 pens and junkets to Japan.
Sounds to me like Rev Can is doing all it can to make it harder and harder to do any business in Canada. From what I gather they want their tax money on any and all monies earned whether you had losses or not and if you dare CLAIM any losses those losses won't be determined by your financial records, Rev Can will determine whether those losses can be claimed or not.
Looks to me like this is a great way to drive the economy into the crapper.
it is funny however, that from what I have learned of how our economy works, it isn't necessarily profit that drives the economy, but transactions, revenue stream, etc. because a company can put money into our economy without necessarily making much (if any) profit.
Seems to me to be just another way for our illustrious Government to take MORE money out of the economy to spend on their wonderful $17.00 pens and junkets to Japan.
Well, the REOCP test is supposed to be objective. It is not so much that you have to show profits in the year you incur expenses, but for such expenses to be deductible for that year, you must have in that year a REOCP during the entire time your business is carried on, etc..
What you said makes sense. It is actually the Department of Finance that releases the draft legislation when a particular court case's result is not considered "proper".
What you said makes sense. It is actually the Department of Finance that releases the draft legislation when a particular court case's result is not considered "proper".
