Overview of accounting your business income for income tax purposes.
Business income is income you earn from a profession, a trade, a manufacture or undertaking of any kind, an adventure or concern in the nature of trade, or any other activity you carry on for profit and there is evidence to support that intention.
For example, income from a service business is business income. Business income does not include employment income, such as wages or salaries received from an employer.
See Sources of Income for a full list of possible business income.
You must include all your income when you calculate it for tax purposes. If you fail to report all your income, you may have to pay a penalty of 10% of the amount you failed to report after your first omission.
A different penalty may apply if you knowingly, or under circumstances amounting to gross negligence, participate in the making of a false statement or omission on your income tax return. The penalty is 50% of the tax attributable to the omission or false statement (minimum $100).
How to account for your business income
Business owners have to provide information about their business income and expenses.
Although we accept other types of financial statements, we encourage you to use any of the following forms that apply to you:
- Form T2125, Statement of Business or Professional Activities
- Form T2042, Statement of Farming Activities
- Form T2121, Statement of Fishing Activities
- Form T1163, Statement A – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1164, Statement B – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations
- Form T1273, Statement A – Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1274, Statement B – Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations
We have designed the forms to accommodate the most common income and expense categories used by your business. You can use the categories included on the forms when you start up your own accounting records.
You also have to record as income any amount credited to your account or set aside for you as payment for providing goods and services. This includes amounts credited to your accounts as offsets against an amount you owe.
You have to support all income entries in your records with original documents like:
- sales invoices
- cash register tapes
- fee statements
Keep these supporting documents in calendar order or numerical order. Keep them available in case we ask to see them.
You must keep a separate record of your income from all other sources, such as professional fees and income from property, investments, taxable capital gains, estates, trusts, employment, and pensions.
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