Accg_Tax_Notes_C4

Accg_Tax_Notes_C4 - CHAPTER FOUR INCOME FROM BUSINESS(Div B...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER FOUR - INCOME FROM BUSINESS (Div B, Subd b, S9 – 37) What is a business? S248 refers to an undertaking of any kind and includes an “adventure in the nature of trade” (a scheme designed to make a profit) but excludes employment income. Last chapter we discussed the common law tests distinguishing employment from self- employment (business) income. S9(1) refers to income from business as the profit therefrom, suggesting revenue net of related expenses. The courts have supported this interpretation, indicating that GAAP or generally accepted business practices be used in calculating “profit” subject to any specific adjustments mandated by the ITA. Therefore GAAP is used as the starting point in all computations of business income. A reconciliation format is then used to add and subtract the various amounts as mandated by tax law. (This format is used extensively in the text and in our problems.) Note that our problems in the text include corporations. The rules pertaining to income from business apply equally to various business forms including corporations, partnerships or proprietorships. Business income vs capital receipt: Another set of common law tests has evolved to distinguish income (business or property) from capital receipt. (Next chapter we will provide information on how to distinguish property income from business income. That will complete our 4 major sources of income.) This is necessary in determining the appropriate tax rules and deductions to consider, but also because capital gains have historically been more favourably taxed than income. The common law tests are: Primary Intent - Was the taxpayers’ intent at the TIME OF PURCHASE of the asset, to resell it at a profit?(like inventory) If so, then business income or loss will result on the sale of this asset. Or, was the taxpayers intent at the TIME OF PURCHASE of the asset, to use it within a larger business activity, to assist in the income generating activity?(like capital assets) If so, then the eventual sale of this asset will be considered capital in nature. Secondary Intent - Did the taxpayer have, at THE TIME OF PURCHASE of the asset, a secondary motive (“escape hatch”) of reselling at a profit, should the primary intention (capital use) not be accomplished for any reason. For the CRA to be successful with this test, they must demonstrate that the taxpayer had some “specialized knowledge” at the TIME OF PURCHASE which would make the existence of such secondary intent, likely. This is normally accomplished by establishing that the purchase and sale transactions closely resembled the type of transactions which the taxpayer carried out on a regular basis to earn business or employment income. (Eg A real-estate agent or broker by profession, who enters into a transaction involving their own purchase and ultimate sale of real property. Or, a stock broker by profession who enters into a transaction involving their own purchase and ultimate sale of stocks.)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 5

Accg_Tax_Notes_C4 - CHAPTER FOUR INCOME FROM BUSINESS(Div B...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online