Business Income

Business income is income you earn from a profession, a trade, a manufacture, or any other activity you carry on for profit. For Quebec residents who are sole proprietors or partners, this income is reported on both federal and provincial tax returns. Unlike employment income, you report your net profit after deducting eligible expenses.

As a sole proprietor or partner in Quebec, you must report your business income and expenses on both your federal and Quebec tax returns. While the information is similar, different forms are used for each government.

Business income is the profit you earn from carrying on a trade, a profession, a calling, or any other activity you undertake for profit. A key factor in distinguishing a business from a hobby is having a reasonable expectation of profit. An activity is a hobby if your main purpose is personal enjoyment, not profit. Hobby income is not taxed, and related expenses cannot be deducted. The line between a hobby and a business can be fine, so careful record-keeping is important.

Capital gains or rental income may be reclassified based on various factors that assess whether the transaction was carried out with a commercial or business intent from the outset. Both the Canada Revenue Agency (CRA) and Revenu Québec evaluate the following criteria:

• Intent: Was your primary intention at the time of purchase to quickly resell the property for a profit? This is the most crucial factor.
• Frequency of similar transactions: If you frequently buy and sell similar types of property (e.g., real estate, stocks), it is more likely to be considered a business activity.
• Period of ownership: A shorter period of ownership before resale points towards a business intention.
• Relation to your normal business: If the transaction is related to your professional activity (e.g., a real estate agent buying and selling property), it is more likely to be seen as business income.
• Work performed: If you undertake significant work or effort to improve the property to make it more marketable (e.g., renovating a house), it can indicate a business-like intention.
• Financing: How the purchase was financed can also be a factor. Short-term, high-interest financing may suggest an intent to quickly flip the property.

Example :

Jovi is a contractor who buys a run-down house, renovates it extensively over six months, and sells it for a significant profit. They have done this several times in recent years.

Answer:

CRA and Revenu Québec: The tax authorities would likely view this as an "adventure in the nature of trade" or a business. The short period of ownership, the significant work performed to increase the value, and the repeated nature of the activity all indicate a business intent.

Tax treatment: The full profit from the sale would be considered business income and 100% taxable, not a capital gain.

Example :

Lori actively day trades in the stock market, buying and selling dozens of different stocks on a daily basis.

Answer:

CRA/Revenu Québec: The high frequency of trades and the short holding periods point toward a business activity rather than long-term investing. The profits from the stock trades would be considered business income and fully taxable, not a capital gain.

The classification of gains can be subjective and depends on the specific facts of each case. If your tax return is audited, the CRA and Revenu Québec will look for evidence of a commercial intent. If you are involved in transactions that have the potential to be reclassified, it is important to keep excellent records to support your claims and, if necessary, consult with a tax professional.

Common sources of business income

• Service business: Income from consulting, freelance work, web design, or providing personal services.
• Accept it as payment for the sale of goods or services. Likewise, there may also be tax consequences if taxpayer operate a cryptocurrency mining business and receive a reward for services.
• Manufacturing or trade: Selling goods that you manufacture or purchase for resale.
• Profession: Income earned from a licensed profession, such as accounting, law, or dentistry.
• Contracting: Income from construction, renovation, or other contracting services.
• Adventure in the nature of trade: A one-time or isolated transaction that has the commercial characteristics of a regular business. This often applies to real estate flipping, trading or exchange or sell virtual currency on a regular basis by speculating on its value
• Online activities: Selling goods or services on platforms like Etsy, eBay, Kijiji, or through your own website.
• Platform economy: Driving for a ride-sharing service like Uber, or providing food delivery services.
• Childcare services: Income earned from running a home daycare.
• Rental income with extensive services: If you provide more than just basic services (e.g., heat, light) to tenants, your rental activity may be considered a business.