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

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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 2020 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 the following 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.

Is your business conducting research and development (R&D) in Canada?

The Scientific Research and Experimental Development (SR&ED) Program gives tax incentives to encourage Canadian businesses of all sizes and in all sectors who conduct R&D to help create a thriving R&D culture in Canada. Learn how you can claim those incentives by going to Scientific Research and Experimental Development Tax Incentive Program.

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 2020?

COVID-19 pandemic measures

In 2020, the Government of Canada introduced several temporary measures to help businesses and individuals during the COVID-19 pandemic. For more information on the measures , go to Canada's COVID-19 Economic Response Plan.

Canada Emergency Response Benefit

The Canada Emergency Response Benefit (CERB) and similar federal and provincial benefits are taxable benefits that you have to report on your income tax return for 2020. Follow the instructions on the tax slip you received, which reports the amounts paid to you. If you did not receive a slip, check My Account for the slip. For more information on the CERB, go to Canada Emergency Response Benefit (CERB).

Government assistance programs for the self employed

You may have received federal, provincial, or territorial government program assistance that was provided for self employed individuals, businesses, farmers, or fishers. You are responsible for reporting the amount of assistance received when you file your income tax return.

Government assistance income is taxable and will either be included in business, farming or fishing income or, if you elect, will reduce your business, farming or fishing expenses. You may also have received a government loan. The loan itself is not taxable. However, any part of the loan that is forgivable is taxable in the year in which the loan is received.

Examples of assistance:

Canada Emergency Wage Subsidy (CEWS) – The CEWS provides a subsidy for the eligible remuneration paid by an eligible employer, for each eligible employee. For more information, go to Canada Emergency Wage Subsidy.

Temporary 10% wage subsidy – This subsidy allows eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency. For more information on rates and maximum amounts, go to 10% Temporary Wage Subsidy for Employers.

Mandatory Isolation Support for Temporary Foreign Workers Program (MISTFWP) – The MISTFWP provides support of $1,500, for each temporary foreign worker, to assist with the incidental costs associated with the mandatory 14 day isolation period. For more information, go to Mandatory Isolation Support for Temporary Foreign Workers Program.

Northern Business Relief Fund (NBRF) – The NBRF provides short term support, in the form of a non repayable grant, for ongoing operational costs to small and medium sized territorial businesses impacted by economic disruptions due to COVID-19. For more information, go to About the Northern Business Relief Fund (NBRF).

For more information, go to Changes to taxes and benefits.

Proposed changes to CCA Classes 54 and 55, and creation of new CCA Class 56

On March 2, 2020, the Government of Canada proposed a temporary enhanced first-year capital cost allowance (CCA) of 100% for eligible new and used fully electric or hydrogen powered automotive equipment and vehicles that currently do not benefit from the accelerated rate provided by Classes 54 and 55. These vehicles and equipment would be included in new Class 56. In addition, the Government proposed an extension of Classes 54 and 55 eligibility to include used eligible zero-emission vehicles. For more information on the proposed changes, go to Canada Revenue Agency.

For more information on Class 56, see Classes of depreciable property.

Definitions

Accelerated investment incentive property (AIIP) – Property that is eligible for an enhanced first-year allowance that is subject to the capital cost allowance (CCA) rules. The property may be eligible if it is acquired after November 20, 2018, and becomes available for use before 2028. For more information on AIIP, go to Accelerated Investment Incentive

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 that 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 that is owned by the taxpayer (other than a zero-emission vehicle) or that is leased, and is 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.

Passenger vehicles and zero-emission passenger vehicles are subject to limits on the amount of CCA, interest, and leasing costs that may be deducted. They do 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 destroyed, expropriated, damaged, 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.

Zero-emission passenger vehicle (ZEPV) – an automobile that is owned by the taxpayer and is included in Class 54 (but would otherwise be included in Class 10 or 10.1). The rules that apply to the definition of passenger vehicles apply to zero-emission passenger vehicles. A ZEPV does not include a leased passenger vehicle, but other vehicles that would otherwise qualify as a ZEPV if owned by the taxpayer, are subject to the same leasing deduction restrictions as passenger vehicles.

Zero-emission vehicle (ZEV) – is a motor vehicle that is owned by the taxpayer where all of the following conditions are met:

  • is a plug-in hybrid with a battery capacity of at least 7kWh or is either fully:
    • electric
    • powered by hydrogen
  • is acquired, and becomes available for use, after March 18, 2019, and before 2028
  • has not been used or acquired for use for any purpose before it was acquired by the taxpayer
  • is a vehicle in respect of which an amount has not been deducted as CCA and a terminal loss has not been claimed by another person or partnership

Note

Under proposed legislation, if the property was acquired after March 1, 2020, it may have been used, but a vehicle that was subject to a prior CCA or terminal loss claim cannot have been acquired by the taxpayer on a tax-deferred "rollover" basis nor previously owned or acquired by the taxpayer or a non-arm's length person or partnership.

  • is a vehicle for which:
    • an election has not been made to forgo the Class 54 or 55 treatment
    • assistance has not been provided by the Government of Canada under the new incentive announced on March 19, 2019
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