Sources of income
The following are considered as sources of income:
- Bad debts
- Vacation trips and awards
- Government grants and subsidies
- Surface rentals for petroleum or natural gas exploration
- Rental income
- Gift cards or certificates – sales
- Incentive income – pre-loaded credit cards and gift cards
- Barter transactions
- Selling a property
- Lottery prize commissions
If, during the year, you received any amount that you wrote off as a bad debt in a previous year, you have to include the amount in your income for the current year. For more information, see interpretation bulletin IT-442, Bad debts and reserves for doubtful debts.
There may be GST/HST implications on the recovery of bad debts. For more information, see guide Guide RC4022, General Information for GST/HST Registrants.
You have to bring any reserve you claimed in a previous year back into income the next year. The Income Tax Act lets you take a new reserve based on your circumstances at that time.
For more information, see interpretation bulletin IT-154, Special Reserves.
Vacation trips and awards
If you received vacation trips or other kinds of awards (such as jewellery or furniture) as a result of your business activities, you must include the value of these awards in your business income.
Vacation trips and awards may have GST/HST implications. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Government grants and subsidies
If you get a grant or subsidy from a government or government agency, you'll have to report it as income or as a reduction of an expense. Generally, a grant or subsidy:
- increases your income or reduces your expenses
- relates to an income deficiency
- relates to specific expenses
For example, if you are a farmer and you received a payment to subsidize your income in a drought year, you would add the payment to your income. However, if you are a business which receives a government employment grant to hire more students, you would generally deduct it from the wage expense you are claiming.
Government assistance that enables you to acquire capital property does not increase your net income. However, for depreciable property, you reduce the capital cost of the property by the amount of the assistance received. For other capital property, reduce the adjusted cost base accordingly.
For more information, see interpretation bulletin IT-273R2, Government Assistance - General Comments.
Surface rentals for petroleum or natural gas exploration
If you have land that you usually use in your farming or business operation, and you are leasing it out for petroleum or natural gas exploration, you may have to include the leasing proceeds in your income as a capital receipt or as an income receipt.
For more detailed information, see interpretation bulletin IT-200, Surface Rentals and Farming Operations.
Rental income can be income from property or income from business. Income from rental operations is usually income from property.
Do not include rental income, whether from farm property or real estate, with your income from business or farming. You have to report it separately on your tax return.
For more information on rental income and how to report it, see Guide T4036, Rental Income.
Gift cards or certificates – sales
A gift card or certificate is a monetary-equivalent (e.g.: voucher, receipt, ticket) that has a stated value and provides for payment of goods and services in the amount of the stated value.
If you sell gift cards or certificates, you must report, as business income, the amounts received from the sale on the date they are sold. A business may choose to calculate a reserve as a deduction against this income. A reserve is the amount of gift cards or certificates that you anticipate will be redeemed after the end of your fiscal year. A reserve amount that is deducted against business income in one year must be added back to business income the following year. It is your choice whether you calculate a reserve.
Do not collect GST/HST when a gift card or certificate is sold. When a customer uses a gift card or certificate as payment for a product or service, calculate the GST/HST on the total price of the item or service. Deduct the amount of the gift card or certificate from the amount the customer owes.
To adjust your returns, if you have already filed but have not reported income from gift cards or certificates, see How to change your return or Voluntary Disclosures Program.
For more information, see Publication P-202, Gift Certificates or call us at 1-800-959-5525.
Incentive income – pre-loaded credit cards and gift cards
In some industries, it is common for manufacturers and other suppliers to offer incentives to businesses as a way to develop a relationship or build demand for a product. Some businesses receive incentives in the form of a cheque or electronic transfer of funds while some receive incentives through other means, such as pre-loaded credit cards and gift cards.
Regardless of how you received it, incentive income is taxable and you must report it in the year you received it. This includes income you earn as part of a business or a professional activity (individual, corporation, or trust) or a partnership of which you are a member.
For example, your business receives a $1,200 pre-paid credit card from a supplier in consideration for business dealings or as a token of loyalty. This amount is taxable and you must report it as income for your business. If your business is incorporated, and a shareholder uses the pre-paid credit card personally, the shareholder must also report the amount as income.
In these circumstances, there may be no offsetting deduction to the corporation, and a double taxation of the amount may occur.
To report incentive income on your tax return, you must include the total value of all incentives received as part of a business. Report the incentive income in the year the incentives were received.
For more information on how to report business income, go to Report business income and expenses.
A barter transaction takes place when any two persons agree to exchange goods or services between them.
If you are involved in a barter transaction, the goods or services you received could be considered proceeds from a business operation.
If you are in a business or profession that provides goods or services, and you exchange these goods or services in a barter transaction, you have to include the value of the goods or services you exchanged in your income.
Barter transactions may also have GST/HST implications. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Selling a property
If you sell a capital property, you may have:
- a recovery of capital cost allowance, (known as recapture)
- an undepreciated balance in a class and no property remaining in that class (known as a terminal loss)
a capital gain of capital loss. For example, if you sell a capital property for more than it cost, you have a capital gain, and if you sell it for less than it cost, you have a capital loss
Generally, you have a capital gain or a capital loss when you dispose of capital property. For example, if you sell a piece of land for more than it cost, you have a capital gain, and if you sell it for less than it cost, you have a capital loss.
For more information on capital gains and capital losses, see Guide T4037, Capital Gains and for additional rules relating to farmers, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.
There may be GST/HST implications when you sell a property. For more information, see Guide RC4022, General Information for GST/HST Registrants.
Lottery Prize Commissions
Lottery ticket retailers who receive prize commissions from a provincial lottery corporation for selling winning tickets must report them as income.
This only applies to lottery prize commissions received on or after January 1, 2014. The CRA will not reassess retailers to include lottery prize commissions received prior to January 1, 2014.
If you need more information, call 1-800-959-5525.
Prizes received in relation to the purchase of a lottery tickets continue to be non-taxable for the winners in Canada.
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