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Unformatted text preview: 3520-7: Last updated on 9/17/091-131Lecture 7: Income or Loss from a Business and Introduction to GST1.1CoverageUse the lecture notes for studying; for parts that you think you really need more info please search for the relevant materials in CTP ch. 5 and ch. 21Self-study problem 5-2: ignore item 13 Self-study problem 5-3: ignore items 12 and 132Business Income Compared to Employment Income, Property Income and Capital GainsThe rules for computing income or loss from business or property are contained in subdivision b of Division B of ITA 9 to 37 Before we can apply the rules in subdivision b we must decide if it is business income or employment income (subdivision a) or property income (also subdivision b) or capital gains (subdivision c)Although “business” is defined in ITA 248(1) there have been many court cases on thisBusiness income is generally speaking income earned from selling goods or providing services. However providing the services of an employee is not business income (it is employment income). Employment income and the difference between an employee and a self-employed business person were discussed in lecture 2Business income differs from property income in that property income is typically passive income earned from investing assets whereas business income actually involves selling goods or providing services to clients or customers. Property income was discussed in lecture 3 A capital gain on the sale of a capital asset is not business income. Business income occurs when a taxpayer sells inventory and inventory is not a capital property. The difference between inventory and capital property is covered in lecture 3 read CTP 5-23Determining Business Income: ITA 9 to 37 (fiscal period ITA 249.1)ITA 9: start with profit (generally GAAP net income)ITA 10: deals with inventory. Inventory must be recorded at the lower of cost or fair market value ITA 12: income inclusionsITA 18: items you can't deductITA 20: what you can deductITA 37: deduction of most costs of scientific research and experimental development (SRED or R&D) carried on in Canada (except land and buildings)The deduction does not have to be taken in the yearThe costs go into a pool and can be carried forward indefinitelyThere is a related investment tax credit3520-7: Last updated on 9/17/092-13ITA 249.1: deals with the fiscal period (individuals must generally use the calendar year, corporations can choose a non-calendar year end but must be consistent once they choose one) 3.1Some other rules that apply for all purposes of the ITA are also applicable to the calculation of business income including:3.1.1The Reasonable RequirementITA 67 says that expenses in excess of a reasonable amount cannot be deducted e.g. if a salary in excess of a reasonable amount is paid (e.g. to a family member), the excess amount is not deductible3.1.2The 50% meals and entertainment ruleITA 67.1 says that you can only deduct 50% of meals and entertainmentITA 67....
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- Spring '09
- Depreciation, Taxation in the United States, ITA