In order for any amounts to be deductible on tax return, the taxpayer must “carry on business” in the fiscal period in which the expense was incurred. So when does the business start? Here are some guidelines from CRA’s Interpretation Bulletin IT 364:
– A business starts whenever some significant activity that forms a regular part of the income-earning process takes place.
– There must be a specific concept of the type of business activity that will be carried on.
– An organizational structure must be in place to undertake the essential preliminaries, to show whether this is a one-time transaction, or an on-going enterprise.
It is important to fully utilize your start-up costs over the lifetime of your business as they can help you reduce profits in the future (or get back taxes paid in the past). Below are some examples of activities that indicate whether or not business is considered by CRA to have started:
Business has NOT started according to CRA if the taxpayer reviewed various business opportunities, took some steps to obtain a patent or just created a business plan.
On the other hand business has started if the taxpayer:
– Undertook market surveys to establish the place or method of carrying on a business.
– Purchased materials/inventory for resale or production,
– Began construction of a building together with recruiting and training staff, advertising, etc.
– Negotiated contracts with future suppliers and so on.
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