Self employed Business, Professional, Commission, Farming, and Fishing Income: Is this guide for you?

From: Canada Revenue Agency

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Is this guide for you?

Use this guide if you earned income as a:

  • sole proprietor (unincorporated, self-employed individual) who is any of the following:
    • business person
    • professional
    • commission sales person (this is different from an employee who earns commission)
    • daycare in your home
    • farmer
    • fisher
  • partner of a:
    • partnership who is a business person
    • partnership who is a professional
    • farming or fishing partnership

It will help you calculate your self-employment income to report on your 2018 income tax return.

Though a trust may be considered an individual, this guide is not for trusts. Do not use this guide if you are a trust or a corporation.

If you are a trust, use Guide T4013, T3 – Trust Guide.

If your business is incorporated, use Guide T4012, T2 Corporation – Income Tax Guide.

This guide contains tax information for all types of self-employment business income. However, some tax rules are not the same for all types of business. In this document, you will find icons.

briefcase icon The briefcase icon means the information is specific to business and professional income and Form T2125, Statement of Business or Professional Activities.

farm icon The tractor icon means the information is specific to farming and Form T2042, Statement of Farming Activities.

fish icon The fish icon means the information is specific to fishing and Form T2121, Statement of Fishing Activities.

farm icon For farmers

If you are participating in the AgriStability and AgriInvest programs, you have to use the applicable guide:

fish icon For fishers

You can be a self-employed fisher and also a partner of one or more fishing partnerships. For instance, you may have fished for groundfish by yourself and also have been in a lobster-fishing partnership with your child.

Generally, we consider you to be a self-employed fisher if all of the following applies to you:

  • you participate in making a catch
  • you are not fishing for your own or another person's sport
  • you meet at least one of the following conditions:
    • you own or lease the boat that is used to make the catch
    • you own or lease specialized fishing gear used to make the catch (not including hand tools or clothing)
    • you hold a species licence issued by Fisheries and Oceans Canada, which is necessary to make the catch
    • you have a right of ownership to all or part of the proceeds from the sale of the catch, and you are responsible for all or part of the expenses incurred in making the catch. This means you have to pay a predetermined amount or percentage of the expenses, such as fuel, had by the crew in making the catch, regardless of the value of the catch.

You are considered to be self-employed if you have a business relationship with a payer and you have the right to determine where, when, and how your work is done. For more information, see Guide RC4110, Employee or Self-Employed?

Throughout this guide, we refer to other publications such as guides and forms. Generally, if you need any of these, go to Forms and publications. You may want to bookmark this address for easier access to our website in the future. For more information on archived content of interpretation bulletins, go to What the Archived Content notice means for interpretation bulletins.

What's new for 2018?

Daycare in your home

Daycare in your home has always been covered in the T4002 and reported on the T2125. However, for your convenience we have added specific examples and descriptions to highlight information that is particularly relevant to your situation.

Capital Cost Allowance Class 43.1

Geothermal heat equipment has been included in capital cost allowance Class 43.1. For more information see Class 43 (30%).

Accelerated Investment Incentive Properties

The Government of Canada’s 2018 Fall Economic Statement was tabled on November 21, 2018.

It proposes the following measures for eligible property that is acquired after November 20, 2018:

  • an enhanced first-year allowance which provides for a full write-off of the cost of machinery and equipment used in the manufacturing and processing of goods (Class 53 property) and specified clean energy equipment (Classes 43.1 and 43.2 property). This deduction is available for property that becomes available for use before 2028. The enhanced allowance will be phased out for property that becomes available for use after 2023.
  • an accelerated investment incentive, which will provide an enhanced first-year allowance for certain eligible property that is subject to the capital cost allowance (CCA) rules. In general, the enhancement will be achieved by:
    • applying the prescribed CCA rate for a class to one-and-a-half times the net addition to the class for the year for property that becomes available for use before 2024
    • suspending the existing CCA half-year rule (and equivalent rules for Canadian vessels and Class 13 property) for property that becomes available for use before 2028
  • additional deduction in respect of eligible Canadian development expense and Canadian oil and gas property expense, incurred after November 20, 2018 and before 2028. The additional deduction begins to phase out for expenses incurred after 2023.

The Accelerated investment incentive will allow a first-year CCA deduction equal to up to three times the amount that would otherwise apply in the year the asset is available for use, and property not otherwise subject to the half-year rule (e.g., patents, franchises or limited period licences) will qualify for one-and-a-half times the normal first-year allowance.

The proposed measures will not change the total amount that may be deducted over the life of an eligible property. By claiming a larger deduction in the first year, deductions in later years will be reduced.

For more information about the proposed measures, go to Accelerated Investment Incentive.

Definitions

Arm's length – refers to a relationship or a transaction between persons who act in their separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.

"Related persons" are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

"Unrelated persons" may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts. The following criteria will be considered to determine whether parties to a transaction are not dealing at arm's length:

  • whether there is a common mind which directs the bargaining for the parties to a transaction
  • whether the parties to a transaction act in concert without separate interests; "acting in concert" means, for example, that parties act with considerable interdependence on a transaction of common interest
  • whether there is de facto control of one party by the other because of, for example, advantage, authority or influence

For more information, see Income Tax Folio S1-F5-C1, Related persons and dealing at arm's length.

Available for use – generally, the earlier of:

  • the time the property is first used by the claimant to earn income
  • the time the property is delivered or is made available to the claimant and is capable of producing a saleable product or service

For more information, see Available-for-use rules.

Capital cost – the amount on which you first claim capital cost allowance (CCA). The capital cost of a property is usually the total of the following:

  • the purchase price (not including the cost of land, which is not depreciable)
  • the part of your legal, accounting, engineering, installation, and other fees that relate to buying or constructing the property (not including the part that applies to land)
  • the cost of any additions or improvements you made to the property after you acquired it, if you did not claim these costs as a current expense (such as modifications to accommodate persons with disabilities)
  • for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if these expenses have not been deducted as current expenses

Capital cost allowance (CCA) – you may have acquired depreciable property like a building, furniture, or equipment to use in your business. You cannot deduct the initial cost of these properties in the calculation of the net income of the business or professional activities of the year. However, since these properties wear out or become obsolete over time, you can deduct the cost over a period of several years. This deduction is called CCA.

Depreciable property – the property on which you can claim CCA. It is usually capital property from a business or property. The capital cost can be written off as CCA over a number of years. You usually group depreciable properties into classes. Diggers, drills, and tools that cost $500 or more belong in Class 8. You have to base your CCA claim on the rate assigned to each class of property.

Fair market value (FMV) – generally, the highest dollar value you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Motor vehicle – an automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

Non-arm's length – generally refers to a relationship or transaction between persons who are related to each other.

However, a non-arm's length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances. For more information, see the definition of arm's length.

Passenger vehicle – a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles. They are subject to the limits for CCA, interest, and leasing. A passenger vehicle does not include:

  • an ambulance
  • a clearly marked police or fire emergency response vehicle
  • a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse used in a funeral business
  • a motor vehicle you bought to sell, rent, or lease in a motor vehicle sales, rental, or leasing business
  • a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers
  • a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers and that, in the tax year you bought or leased it, was used more than 50% to transport goods and equipment to earn income
  • a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment, or passengers to earn income
  • a pick-up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment, or passengers to earn or produce income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community with a population of at least 40,000
  • a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment

Proceeds of disposition – the amounts you receive, or that we consider you to have received, when you dispose of your property (usually the selling price of the property). Proceeds of disposition is also defined to include, amongst other things, compensation received for property that has been expropriated, destroyed, or stolen.

Undepreciated capital cost (UCC) – generally, the amount left after you deduct CCA from the capital cost of a depreciable property. Each year, the CCA you claim reduces the UCC of the property.

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