Income from Business Chapter 4 Overview

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Income from BusinessChapter 4Overview
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Division B Computation of Income

• 3(a) Income from office, employment, business,
  property,other income
• 3(b) Net taxable capital gains (excluding
  ABILs)
• (Not Negative)
• - 3(c) Other deductions
• -3(d) Losses from office, employment, property
  and ABILs
• Net Income for Tax Purposes (NOT NEGATIVE)
• Minus Division C Deductions
• (For individual Employee Stock option, Home
  relocation loan, Capital gain exemption, loss
  carryover, etc.)
• (For corporation Loss carryover, dividends,
  donations)
• Taxable Income (if any)

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Major Provisions for Business Income

• Inclusions
• Section 9
• Section 12 Income
• Deductions
• Section 18 Limitations
• Section 20 Deductions permitted

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Business Income

• Section 9 income from business or property is
  profit therefrom for the year.
• Business is broadly defined in subsection 248.
  The Act used include which stipulates that in
  general, business refers to some form of
  industrial, commercial, of financial endeavor or
  activity which involves more than a passive
  holding of property as an investment.
• Profit is not defined in the ITA, therefore, no
  statutory rule exists to calculate profit. It
  is a question of law.

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Business Income

• For the most part, GAAP (not rules of law but
  interpretive aids) acts as the starting point in
  determining profit. However, the legal principle
  that has been determined by the many court cases
  heard in this area is more in the nature of
  accepted principles of business practice and
  commercial trading rather than GAAP.
• 1. Start with Net Income per Financial Statements
  (F/S) (not sales)
• 2. Reconcile Net Income per F/S to net income for
  tax purposes.

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Business Income vs. Capital Receipt

• Important distinction because
• 100 of Business Income is taxed
• 50 of Capital Receipt is taxed