Business & Property

Question 1

Business and Property Rules

Answer 1

S 9-11 (basic rules)
S 12-17 (specific inclusions and timing)
S 18-21 (deductions)
S 22-37 (misc.)

Question 2

S 9

Answer 2

Generally, means profit = revenue - expense

Question 3

Difference b/w business and property income

Answer 3

Attribution applicable to property, not business (s 72-74)
Property income is passive - don’t do anything for it, simply get money because you own it

Question 4

What is a Business?

Answer 4

Section 248 defines business
Generally case law established a business is an organized activity that is carried on for the purpose of profit

Includes: not office and employment income
No capital gains
Not income from property

Question 5

Case Law defining business

Answer 5

Graham - gambling, if intention to make a profit (systematically engaged with the view to make a profit, or operate some sort of commercial enterprise rather than for amusement then is a business (walker/morden)

Tonn - bought property w/ intent to develop, losses for years, thought to not be a business. Bad business judgement does not mean no reasonable expectation of profit.

Landry - lawyer running business so poorly, no reasonable expectation of profit therefore no business.

Stewart (and Walls) - re-articulated test for REOP. Activity contains no personal element & clearly commercial just determine if business or property. If personal in nature ask if REOP.

Eldrige - illegal business are liable to tax. Business is a business.

Question 6

Property (definition, how is it property, vs capital gains

Answer 6

S 248 definition - money, timber, rights of any kind, a share, chose in action; work in progress of a business that is a profession.

Personal property, real property, intangible property, dividends, rental income, royalties, interest.

Passive.

Sale of property generates capital gain.

Question 7

Interest Income (section, when is it included in income, case law)

Answer 7

S 16(1) blended payments - if something could be reasonably regarded as interest, it will be treated as such and taxed accordingly

S 12 (1)(c) - when received or receivable
S 12(3) and (4) modify rule to prevent perpetual deferral of tax

Groulx - sold property, some money received instantly, rest in annual instalments w/ no interest unless delayed. Reasonably regard payments as interest.

Question 8

Rent, royalties and dividend income (Section, what are they?)

Answer 8

S 12(1)(g)
Amounts received that was dependent upon use of, or production from property.

Rent is generally a fixed payment for the use of property for a given period of time

Royalty is generally for use of intangible property

Question 9

Deductions from Business and Property (Section, definition, case law)

Answer 9

S 18(1) - no expense deducted unless incurred to gain or produce income

• no deductions for capital outlays
• no deductions for personal and living expenses

Imperial oil - gain or produce income where risk is normal and ordinary hazard of business? Only need to show generally it was incurred in the business context, no need to produce actual revenue.

Royal Trust - played golf to generate business, good business practice. S 18(1)(i) prohibits a deduction for recreational facilities or payment of club dues.

Eldridge - illegal business, if made to gain or produce income then it is deductible.

Question 10

Personal Living expenses (Section, case law)

Answer 10

S 18(1)(h)

Benton - hired help to cook and clean while working on farm. Found to be personal expense, primarily housekeeper—contribution to income-earning was secondary.

Leduc - legal bill to defend against criminal charge. Personal, not normal part of the production of income.

Symes - child care expenses. Already deductible under different section, more connected to personal than business life.

Scott - bike courier food costs. Went above and beyond normal requirements so deductible.

Cummings - normally cost of driving to and from work is personal. Here primary office was home, by leaving house he began ‘work’. Not applicable to cars more than 20,000 S 13(7)(g)

Question 11

Home Office expenses (Section, meaning)

Answer 11

S 18 (12)
Principal place of business or used exclusively for purpose of earning income from business and used on a regular and continuous basis for meeting clients….

S 18(12)(b) prohibits HO expense used to create loss, cannot exceed income.

Question 12

Deductions - Food and Entertainment (Section, how so, how much?)

Answer 12

Entertainment and food are personal and living expenses; but food can be used in business (travelling, soliciting, clients, etc.)

50% deductibility for food if used for business and property income.

Subject to reasonableness 67.1

Question 13

Deductions - Education Expense

Answer 13

S 118.5 credit, education expenses considered personal expense but might qualify for credit

For upkeep in licensing requirements and refreshing learning are considered deductible expenses.

Question 14

Deductions - Convention Expense

Answer 14

S 20(10) can deduct for 2 conventions a year, must be within “territorial scope”

S67.1(3) discerns between what is deductible for the convention and what is deductible for the food and beverage piece.

Question 15

Fines and Penalties

Answer 15

Policy 67.6 enacted so no fine or penalty, unless prescribed in deductible (following case 65302 BC - chicken egg overproduction).

Question 16

Illegal Payments

Answer 16

S 67.5 - no deduction for any offences of Criminal code (under certain sections - ex. bribe) or corruption of foreign officials act.

Question 17

Reasonableness Requirement

Answer 17

S 67 - no deduction except to the extent the expense was reasonable in the circumstances

Mulder - hired wife and paid salary… here salary was seen as unreasonable and therefore not deductible.

No. 511 - To take into account reasonableness, look at the size of the company and the corporate revenue

Question 18

Interest Expense (section, can you deduct? Case law)

Answer 18

S 18(1)(b) no deduction of interest as an expenditure on account of capital but 20(1)(c) and (d) provide statutory exceptions, allowing deduction of interest expense under certain conditions

Bronfman - look at borrowed money and track it to an eligible use.

Singleton - ask what is the direct use? If to repay capital, found to be productive use.