What Comes Under CRA Business Income Tax?
In Canada, it is important for self-employed individuals to know what constitutes business income according to the CRA. This is important in the calculation of taxable income.
Here is what you know in this regard.
No matter whether you deal with goods or services, the federal government makes note of any amount of money that goes into your pocket without an employer paying for it. Regardless of whether your business is registered or you declare the income generated from it, the federal government makes note of all your earnings – whether small or big. When demanded, you are required to give a clarification regarding your profit intentions. Also, it is necessary to furnish evidence in support of your explanation.
In a nutshell, the CRA considers the income which comes from your profession as a proprietor, small business owner and business partner as your business income. The amount of money which you earn in the form of wages or salary is not taken into consideration in this connection.
The Sources of Business Income
Apart from the direct payments originating from the client’s end for goods and services, the CRA also mulls over some other sources of income of self-employed individuals. These are discussed below.
- Bad debts
- Vacation trips
- Grants and subsidies
In order to develop a better understanding of business income for making tax decisions, it is strongly recommended that you check with your tax professional.
Reasons Why You Should Know Your Business Income
For the calculation of the professional or business income of self-employed individuals, T2125 form related to the Statement of Business Activities is used. This procedure is extensively used in the calculation of business or professional taxes of those individuals who are either sole proprietors or have entered into a business agreement with 1-5 people.
Work out your net income from your gross income by subtracting different business expenses such as your business mileage, advertising, home office, rent and so on. Make sure you do not miss out on any income and mention them while filing your return to avoid penalties from the federal government.
Records to Be Kept for Business Income
The CRA looks for records pertaining to your professional income as well as expenses. Though it accepts different kinds of financial statement, it seeks original copies of the following documents:
- Receipts for expenses
- Sales invoices
- Cash register tapes
- Fee statements
- Other records related to business income
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