Business and Professional Income 2009

T4002(E) Rev. 09

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Table of Contents

• Is this guide for you?
• What's New for 2009?
• Chapter 1 – General Information
  • Business and business income
  • How do you report your business income?
  • Business records
  • Instalment payments
  • Dates to remember
  • What is a partnership?
  • Investment tax credit
• Chapter 2 – Income from Business or Profession
  • Sole proprietorships
  • Partnerships
  • How to complete Form T2125, Statement of Business or Professional Activities
  • Identification
  • Part 1 – Business income
  • Part 2 – Professional income
  • Part 3 – Gross business or professional income
  • Part 4 – Cost of goods sold and gross profit
• Chapter 3 – Expenses
  • Current or capital expenses?
  • Part 5 – Net income (loss) before adjustments
  • Part 6 – Your net income (loss)
  • Details of other partners
  • Details of equity (page 3 of Form T2125)
• Chapter 4 – Capital Cost Allowance (CCA)
  • What is capital cost allowance?
  • Definitions
  • How much CCA can you claim?
  • How do you make your claim?
  • Classes of depreciable property
  • Special situations
• Chapter 5 – Eligible Capital Expenditures
  • What is an eligible capital expenditure?
  • What is an annual allowance?
  • What is a cumulative eligible capital (CEC) account?
  • How to calculate your annual allowance
  • Sole proprietor
  • Partnership
  • Election
  • Replacement property
• Appendix – Industry Codes
• Index
• For more information
  • Forms and publications
  • Electronic services
  • Contact us
  • Our service complaint process
  • Your opinion counts

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Is this guide for you?

Use this guide if you are a self-employed business person or a professional. It will help you calculate the business or professional income you will report on your 2009 income tax return. Self-employed commission salespersons should also use this guide to determine the income to report in 2009.

You are considered to be self-employed if you have a business relationship with a payer and you also 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 guides, forms, interpretation bulletins, and information circulars. Generally, if you need any of these, go to Forms and publications page. You may want to bookmark this address for easier access to our Web site in the future.

The term income tax return used in this guide has the same meaning as income tax and benefit return.

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Chapter 1 – General Information

This chapter has general information for all businesses (including self-employed commission sales) and professional activities. It also provides information specifically for partnerships.

Business and business income

A business is an activity that you intend to carry on for profit and there is evidence to support that intention.

A business includes:

• a profession;
• a calling;
• a trade;
• a manufacture;
• an undertaking of any kind; and
• an adventure or concern in the nature of trade (for more details, see Interpretation Bulletin IT-459, Adventure or Concern in the Nature of Trade).

Note
For the purpose of this guide and other reporting purposes, professional activities will be discussed as a separate category of business.

Business income includes income from any activity you do for profit. For example, income from a service business is business income. However, you do not include employment income as business income.

Note
Include all your income when you calculate it for tax purposes. If you fail to report all your income, you may be subject to 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. This penalty is 50% of the tax attributable to the omission or false statement (minimum $100).

You were asking…

Q.	When does a business start? Can you deduct the costs you incur before and during the start of a business?
A.	We look at each case on its own merits. Generally, we consider that a business starts whenever you start some significant activity that is a regular part of the business or that is necessary to get the business going.

For example, suppose you decide to start a merchandising business and you buy enough goods for resale to start the business. At this point, we would consider that the business has started. Usually you can deduct the expenses you incur for the business from that date. You could still deduct the expenses even if, despite all your efforts, the business ended. On the other hand, assume you review several different business prospects in the hope of going into a business of some kind. In this case, we would not consider that the business has started, and you could not deduct any of the costs you incur.

For more details about starting a business, see Interpretation Bulletin IT-364, Commencement of Business Operations.

The law allows Statistics Canada to access business information collected by the Canada Revenue Agency (CRA). Statistics Canada can now share with provincial statistical agencies, for research and analysis purposes only, data concerning business activities carried on in their respective provinces.

How do you report your business income?

Fiscal period

You report your business income based on a fiscal period. A fiscal period is the time covered from the day your business starts its business year to the day your business ends its business year. For an existing business, the fiscal period is usually 12 months. A fiscal period cannot be longer than 12 months. However, it can be shorter than 12 months in some cases, such as when a new business starts or when a business ends.

Self-employed individuals generally have to use a December 31 year-end. If you are an eligible individual, you may be able to use an alternative method of reporting your business income that allows you to keep a fiscal period that does not end on December 31. If your fiscal year-end is not December 31, you will need Guide RC4015, Reconciliation of Business Income for Tax Purposes, to calculate the amount of business income to report on your 2009 income tax return. The publication includes Form T1139, Reconciliation of 2009 Business Income for Tax Purposes.

If you filed Form T1139 with your 2008 income tax return, generally you have to file that form again for 2009.

Accrual method

In most cases, as a self-employed individual, you report business income by using the accrual method of accounting. With this method, you:

• report your income in the fiscal period you earn it, regardless of when you receive the income; and
• deduct expenses in the fiscal period you incur them, whether you paid them in that period or not. Incur usually means you either paid or will have to pay the expense.

Income from professional activities is business income. Therefore, you report it using the accrual method.

Cash method

If you are a self-employed commission salesperson, you can use the cash method of reporting your income and expenses, as long as it accurately shows your income for the year. Under this method, you:

• report income in the year you receive it; and
• deduct expenses in the year you pay them.

Business records

You are required by law to keep records of all your transactions to support your income and expense claims.

Keep a record of your daily income and expenses. We do not issue record books or suggest any type of book or set of books. There are many record books and bookkeeping systems available. For example, you can use a book that has columns and separate pages for income and expenses.

Keep your records, along with your duplicate deposit slips, bank statements, and cancelled cheques. Keep separate records for each business you run. If you want to keep computerized records, make sure they are clear and easy to read.

Note
Do not send your records with your income tax return. However, keep them in case we ask to see them at a later date.

Benefits of keeping complete and organized records

There are benefits for you when you keep complete and organized records:

• When you earn income from many places, good records help you identify the source of the income. If you keep proper records, you may be able to prove that some income is not from your business, or that it is not taxable.
• Keeping good records will remind you of expenses you can deduct when it is time to do your income tax return.
• Good records will keep you better informed about the past and present financial position of your business.
• Good records can help you budget, spot trends in your business, and assist you to get loans from banks and other lenders.
• Good records can prevent problems you may run into if we audit your income tax returns.

Consequences of not keeping adequate records

If you do not keep the necessary information and you do not have any other proof, we may have to determine your income using other methods.

We may also disallow expenses you deducted if you are unable to support them.

There are penalties if you do not keep adequate records, do not give the CRA access to your records when requested, or do not give information to CRA officials when asked.

Income records

Keep track of the gross income your business earns. Gross income is your total income before you deduct the cost of goods sold and expenses. Your income records should show the date, amount, and source of the income. Record the income whether you received cash, property, or services. Support all income entries with original documents. Original documents include sales invoices, cash register tapes, receipts, bank deposit slips, patient cards, fee statements, and contracts.

Expense records

Always get receipts or other vouchers when you buy something for your business. When you buy merchandise or services, the receipts have to show:

• the date of the purchase;
• the name and address of the seller or supplier;
• the name and address of the buyer; and
• a full description of the goods or services.

You were asking…

Q.	What should I do if there is no description on a receipt?
A.	When you buy something, make sure the seller describes the item. However, sometimes there is no description on the receipt, as with a cash register tape. In this case, you should write what the item is on the receipt or in your expense journal.
Q.	What should I do if a supplier does not give me a receipt?
A.	When you buy something, make sure you ask for a receipt. Sometimes, however, suppliers may not provide receipts. In this case, write the information in your records. Show the name and address of the supplier, the date you made the payment, the amount you paid, and the details of the transaction.

Keep a record of the properties you bought and sold. This record should show who sold you the property, the cost, and the date you bought it. This information will help you calculate your claim for capital cost allowance (CCA) and other amounts.

If you sell or trade a property, show the date you sold or traded it and the amount of the payment or credit from the sale or trade-in.

Time limits

Depending on the situation, keep your records, and related vouchers for the following lengths of time:

• if you file your income tax return on time, a minimum of six years after the end of the tax year to which they relate;
• if you file your income tax return late, six years from the date you file that return; and
• if you file an objection or appeal, until either the issue is settled and the time for filing any further appeal expires, or the six-year period mentioned above has expired, whichever is later.

These retention periods do not apply to certain records. For more details, see Information Circular IC78-10, Books and Records Retention/Destruction. If you want to destroy your records and related vouchers before the minimum six-year period is over, you must first get written permission from your tax services office. To do this, either use Form T137, Request for Destruction of Records, or prepare your own written request. For more information, see Guide RC4409, Keeping Records, or go to Keeping records page.

Instalment payments

As a self-employed individual, you may have to make instalment payments for 2010. Your 2010 instalment payments are due on March 15, June 15, September 15, and December 15. In most cases, we will send you a notice indicating an instalment amount we have calculated for you. However, there are different methods that can be used to calculate instalment payments.

To determine which calculation method is the best for you, see Pamphlet P110, Paying Your Income Tax by Instalments.

You may have to pay interest and a penalty if you do not pay the full instalment amount you owe on time.

Note
If any of the dates mentioned above falls on a Saturday, Sunday or a statutory holiday, you have until the next business day to make your instalment payments.

Dates to remember

February 28, 2010 – If you have employees, file your 2009 T4 and T4A information returns. Also, give your employees their copies of the T4 and T4A slips.

March 15, 2010 – Make your first 2010 instalment payment.

March 31, 2010 – Most partnerships will file a partnership information return by March 31, 2010. However, there are exceptions. See T4068, Guide for the T5013 Partnership Information Return.

April 30, 2010 – Pay any balance owing for 2009. File your 2009 income tax return if the expenditures of the business are mainly the cost or capital cost (read the definition) of tax shelter investments.

June 15, 2010 – Make your second 2010 instalment payment. File your 2009 income tax return if you have self-employment income or if you are the spouse or common-law partner of someone who does, unless the expenditures of the business are mainly the cost or capital cost of tax shelter investments. Remember in every case to pay any balance owing by April 30, 2010, to avoid interest charges.

September 15, 2010 – Make your third 2010 instalment payment.

December 15, 2010 – Make your fourth 2010 instalment payment.

Note
If any of the dates mentioned above falls on a Saturday, Sunday, or statutory holiday, you have until the next business day to file your return or make your payments.

What is a partnership?

A partnership is usually the relationship between persons who carry on a business in common with the belief they will make a profit. You can have a partnership without a written agreement. To help you decide if you are a partner in a certain business, determine the type and extent of your involvement in the business and check the laws of your province or territory.

When you form, change, or dissolve a relationship that may be a partnership, consider:

• whether the relationship is a partnership;
• the special rules about capital gains or losses and the recapture of CCA that apply when you transfer properties to a partnership;
• the special rules that apply when you dissolve a partnership; and
• the special rules that apply when you sell or dispose of your interest in a partnership.

For more details about partnerships, see Interpretation Bulletin IT-90, What is a Partnership?

Reporting partnership income

A partnership does not generally pay income tax on its income and does not file an income tax return. Instead, each partner files an income tax return to report his or her share of the partnership's net income or loss. This requirement remains whether the share of income was received in cash or as a credit to a capital account in the partnership.

Partnership losses

A partnership can have a loss. However, apply the loss carry-over rules to each partner and not to the partnership. For example, when you complete your own income tax return, combine your share of the partnership non-capital losses with any other non-capital losses you have in the year. Apply this amount against your income.

The loss carry forward period is 20 years for:

• non-capital losses, farm losses, restricted farm losses, and life insurer's Canadian life investment losses incurred; and
• investment tax credits earned for scientific research and experimental development (SR&ED).

Partnerships that have to file a partnership information return

Partnerships that have to file a partnership information return include those with:

• six or more partners at any time in the fiscal period; and
• five or less partners throughout the whole fiscal period and one or more of its partners is another partnership.

There are other situations where you will need to complete this return. For more information, see T4068, Guide for the T5013 Partnership Information Return.

If you are a partner of a partnership that has to file a partnership information return, that partnership should give you two copies of either a T5013 slip, Statement of Partnership Income, or a T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses. If you do not receive either slip, contact the person who prepares the slips.

On your income tax return, report the gross partnership income and your share of the net partnership income or loss. You will get these amounts from your T5013 or T5013A slip. Attach a copy of your T5013 or T5013A slip to your income tax return. Do not attach the partnership's income and expense statement.

You may need to adjust your share of the net partnership income or loss shown on your T5013 or T5013A slip. Do this to deduct any business expenses you incur for which the partnership did not repay you and for any other deductible amounts. If this is your situation, read “Line 9943 – Other amounts deductible from your share of net partnership income (loss)”. You may also have expenses related to the business use of your home. For more information, read “Line 9945 – Business-use-of-home expenses”.

Guide T4068 has more details about the partnership information return.

Partnerships that do not have to file a partnership information return

Generally, partnerships that have five partners or less throughout the whole fiscal period, and that have no partner who is another partnership, do not have to file a partnership information return. For more information, see Guide T4068.

If you are a partner of a partnership that does not have to file a partnership information return, calculate the partnership's income and expenses using the same rules you would use for a proprietorship. Calculate the partnership's income and expenses as if the partnership was a separate person. Some rules for CCA and eligible capital expenditures on partnership-owned property are different.

Capital cost allowance (CCA)

A partnership can own depreciable property (read the definition) and claim CCA on it. As an individual partner, you cannot claim CCA on property the partnership owns.

From the capital cost of depreciable property, subtract any investment tax credit allocated to the individual partners. We consider this allocation to be made at the end of the partnership's fiscal period. Also, you must reduce the capital cost by any type of government assistance received. Box 85 of your T5013 or T5013A slip will show the amount of CCA the partnership claimed on your behalf. This amount has already been deducted from your business income in box 35 or your professional income in box 37 of the T5013 or T5013A slip. Do not deduct this amount again. See Chapter 4 for more details about CCA and the adjustments to capital cost.

Any taxable capital gain or recapture from the sale of property the partnership owns is included in the income of the partnership. Also, any allowable capital or terminal loss from the sale of partnership-owned property is the loss of the partnership. For more details about capital gains and losses, as well as recapture and terminal losses, read Chapter 4.

Eligible capital expenditures

A partnership can own eligible capital property and deduct an annual allowance. Any income from the sale of eligible capital property the partnership owns is income of the partnership. For more details about eligible capital expenditures, read Chapter 5.

Limited partnership

A limited partnership is a partnership that gives its partners limited responsibilities that are similar to those given to shareholders of a corporation. A limited partner's liability as a partner of the partnership is limited, as opposed to that of a general partner who has unlimited liability.

Goods and services tax/harmonized sales tax (GST/HST) rebate for partners

If you are an individual who is a member of a partnership, you may be able to get a rebate for the GST/HST you paid on certain expenses. The rebate is based on the GST/HST you paid on expenses you deducted from your share of the partnership income on your income tax return. However, special rules apply if your partnership paid you an allowance for those expenses.

As an individual who is a member of a partnership, you may qualify for the GST/HST partner rebate if:

• the partnership is a GST/HST registrant; and
• you personally paid GST/HST on expenses that:
  • you did not incur on the account of the partnership; and
  • you deducted from your share of the partnership income on your income tax return.

Examples of expenses subject to GST/HST are vehicle costs, meals, and entertainment. The rebate may also apply to the GST/HST you paid on motor vehicles, musical instruments, and aircraft, for which you deducted CCA.

The eligible portion of CCA is the part of the CCA that you deducted on your income tax return in the tax year, that relates specifically to a motor vehicle, musical instrument, or aircraft on which you paid GST/HST and that is eligible for the rebate to the extent that the partnership used the property to make taxable supplies.

If you deduct CCA on more than one property of the same class, you have to separate the portion of the CCA for the property that qualifies for the rebate from the CCA for the other property. If any part of the rebate relates to the CCA deduction for a motor vehicle, a musical instrument, or an aircraft, you have to reduce the undepreciated capital cost (UCC) (read the definition) of the related property by that part of the rebate.

File Form GST370, Employee and Partner GST/HST Rebate Application, to claim your GST/HST rebate for partners. If you receive this rebate, you have to include it in your income for the tax year in which you receive it.

For example, if in 2009 you receive a GST/HST rebate relating to the 2008 tax year (on your 2008 notice of assessment), you have to include the amount of the rebate on your income tax return for 2009:

• report the amount of the GST/HST rebate for partners that relates to eligible expenses other than CCA on line 9974 in Part 6 of your 2009 Form T2125, Statement of Business or Professional Activities; and
• in column 2 of Area A on page 4 of your 2009 Form T2125, reduce the UCC for the beginning of 2009 by the portion of the rebate that relates to the eligible CCA.

For more information, see Guide RC4091, GST/HST Rebate for Partners, which includes Form GST370.

Investment tax credit

An investment tax credit (ITC) lets you subtract, from the taxes you owe, part of the cost of some types of property you acquired or expenditures you incurred. You may be able to claim this tax credit in 2009 if you bought qualifying property, incurred qualified expenditures, or were allocated renounced Canadian exploration expenses. You may also be able to claim the credit if you have unused ITCs from years before 2009. For more details about ITCs, see Form T2038(IND), Investment Tax Credit (Individuals).

Apprenticeship job creation tax credit (AJCTC)

The AJCTC is a non-refundable investment tax credit equal to 10% of the eligible salaries and wages payable to eligible apprentices in respect of employment after May 1, 2006. The maximum credit an employer can claim is $2,000 per year for each eligible apprentice.

An “eligible apprentice” is someone who is working in a prescribed trade in the first two years of his or her apprenticeship contract. The contract must be registered with a federal, provincial, or territorial government under an apprenticeship program designed to certify or license individuals in the trade.

The amount of the credit is added to the investment tax credit and is available to reduce federal taxes payable for the tax year. Unused amounts can be carried back 3 years and carried forward 20 years. The AJCTC is reported on Form T2038 (IND), Investment Tax Credit (Individuals). For more information about ITCs, see Form T2038(IND).

Investment tax credit for child care spaces

Employers who carry on a business in Canada, other than a child care services business, can include a non-refundable amount in their investment tax credit calculation for each new child care space they create in a licensed child care facility they operate for the benefit of the children of their employees. This non-refundable amount is equal to whichever is less: $10,000 per child care space created or 25% of the eligible expenditure incurred after March 18, 2007. For more information, see Form T2038 (IND), Investment Tax Credit (Individuals).

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Chapter 2 – Income from Business or Profession

Sole proprietorships

If you are a sole proprietor, you must complete all the applicable areas and lines on Form T2125, Statement of Business or Professional Activities.

Partnerships

The details of your business or professional activities that you have to give us depend on the type of your partnership. If you are a partner of a partnership that has to file a partnership information return, complete Form T2125 as follows:

• Complete the “Identification” area.
• Enter the amount of income shown in box 35, “Business income”, or box 37, “Professional income”, of your T5013 slip, Statement of Partnership Income, or your T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, on line 9369, “Net income (loss) before adjustments”, in Part 5 on page 2.
• Complete the “Other amounts deductible from your share of net partnership income (loss)” chart found on page 3 of the form to claim any expenses for which the partnership did not reimburse you and any other deductible amounts. Also, complete the “Calculation of business-use-of-home expenses” chart if applicable. For more information, read Line 9945.
• Enter your share of the net income or loss from the business on line 9946, “Your net income (loss)”, in Part 6 on page 2. If you did not make any adjustments to the amount in box 35 or box 37 of your T5013 or T5013A slip, the amount you enter on line 9946 will be the same as the amount you entered on line 9369.

If you are a partner of a partnership that does not have to file a partnership information return, complete Form T2125 as follows:

• Complete the “Identification” area.
• Calculate the business income for all partners.
• Calculate the business part of expenses for all partners.
• Complete the “Other amounts deductible from your share of net partnership income (loss)” chart on page 3 to claim any expenses for which the partnership did not reimburse you and any other deductible amounts. Also, complete the “Calculation of business-use-of-home expenses” chart if applicable. For more information, see Line 9945.
• Complete the “Details of other partners” chart on page 3.

To see if your partnership has to file a partnership information return, read “What is a partnership?”. We explain how to complete each of the lines on Form T2125 in this chapter, as well as in Chapter 3.

How to complete Form T2125, Statement of Business or Professional Activities

In the middle of this guide, you will find two copies of Form T2125, Statement of Business or Professional Activities. This form can help you calculate your income and expenses for income tax purposes. We encourage you to use it. However, we will continue to accept other types of financial statements.

If you have both business and professional income, you must complete a separate Form T2125 for each. You must also complete a separate form for each business or professional activity you operate, if you have two or more of either. For more information, see Interpretation Bulletin IT-206, Separate Businesses.

File each completed Form T2125 with your income tax return.

Identification

Complete all the lines that apply to your business or professional activities.

Enter your Business Number (BN), assigned by the CRA, in the appropriate area.

Indicate the period your business year covered, which is your fiscal period. For an explanation read “Fiscal Period”.

Enter the industry code that corresponds to your business from the “Appendix”.

If more than one code describes your business, or if your business has more than one activity, use the code that most closely describes your main business activity. For example, you might operate a bookstore. However, the store might also sell postage stamps. You would still use industry code 451210 (for books or stationery) and not 491110 (for postal services).

If you have a tax shelter, enter the identification number on the appropriate line. If you are claiming a deduction or losses for 2009, attach to your income tax return any applicable T5003 slip, Statement of Tax Shelter Information, and T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, and a completed Form T5004, Claim for Tax Shelter Loss or Deduction. For more information on tax shelters, go to Tax Shelters page.

Note
Tax shelter numbers are used for identification purposes only. They do not guarantee that taxpayers are entitled to receive the proposed tax benefits.

Tax tip
For more information about how to protect yourself against tax schemes, visit Alert page.

If your business or professional activities are a partnership, identify your percentage of the partnership and enter the partnership filer identification number if applicable.

If you are not preparing Form T2125 yourself, enter the name and address of the person or firm that is preparing it for you.

Part 1 – Business income

Tick the box in Part 1 to indicate that you have non-professional business income.

You should complete this part only if you have business income. If you have professional income, leave this part blank and complete Part 2. If you have both business and professional income, you must complete a separate Form T2125 for each.

Line A - Sales, commissions, or fees

Your sales include all sales, whether you receive or will receive money, something the same as money (such as credit units that have a notional monetary value), or something from bartering. Bartering occurs when two people agree to exchange goods or services without using money. Interpretation Bulletin IT-490, Barter Transactions, has more details.

If you usually deduct GST and PST, or HST, or returns and allowances directly from sales when they take place, you can show your net sales (after GST and PST, or HST, and returns and allowances) on line A. Then, do not enter the GST and PST, or HST, or returns and allowances deducted on the following lines. If GST and PST, or HST, and returns and allowances are not deducted directly from sales, show GST and PST, or HST, and returns and allowances separately on the appropriate lines.

If you are a self-employed commission salesperson, enter the commissions you received on this line.

Line C - Adjusted gross sales

Enter your sales, commissions, and fees minus any GST and PST, or HST, and any returns, allowances, and discounts, if these have been included in your sales.

If you elected to use the quick method option to calculate your GST/HST remittances, read the note in “Line A - Sales, commissions, or fees” on page 11 to calculate your adjusted gross sales.

Enter this amount on line 8000 in Part 3 on page 1 of Form T2125.

Part 2 – Professional income

Tick the box in Part 2 to indicate that you have professional income.

You should complete this part only if you have professional income. If you have business income, leave this part blank and complete Part 1. If you have both professional and business income, you must complete a separate Form T2125 for each.

As mentioned in Chapter 1, professional activities are business activities. Usually, you calculate your income from professional activities using the same rules as for a business. However, some aspects of professional activities are different from those of other types of businesses. Some of these differences are discussed in this section.

Line D - Professional fees

Your professional income includes all fees you receive for goods or services you provide, whether you receive or will receive money, something the same as money (such as credit units that have a notional monetary value), or something from bartering. Bartering occurs when two people agree to exchange goods or services without using money. For more information, see Interpretation Bulletin IT-490, Barter Transactions.

As a professional, your income generally includes the value of your work-in-progress (WIP). WIP is goods or services that you have not yet completed at the end of your fiscal period.

If you usually deduct GST and PST, or HST, directly from your professional fees when you earn them, you can show your net professional fees (after GST and PST, or HST) on line D. In this case, do not enter the GST and PST, or HST, deducted on the following line. If GST and PST, or HST, are not deducted directly from your professional fees, show GST and PST, or HST, separately on the appropriate line.

Election to exclude your WIP

You can choose to exclude your WIP when you calculate your income if you are one of the following professionals:

• an accountant;
• a dentist;
• a lawyer (including a notary in Quebec);
• a medical doctor;
• a chiropractor; or
• a veterinarian.

If you did not choose to exclude your WIP in any previous year, you can do so in 2009. You do not need a special form to do this. Attach a letter to your income tax return telling us that you want to exclude your WIP.

You can also exclude your WIP by doing the following:

• On the “Work-in-progress (WIP), end of the year, per election to exclude WIP” line, write the amount you included as WIP at the end of the year in your professional fees on line D.
• On the “Work-in-progress, start of the year, per election to exclude WIP” line, write the amount of your WIP at the start of the year, if you excluded it at the end of last year.

Make this election when you file the original income tax return to which it relates. We will not accept an election when you file an amended return.

For partnerships, an authorized partner must choose to exclude the partnership's WIP on behalf of all partners.

The choice to exclude WIP stays in effect for each following year, unless you file an application and we let you make the change.

For more information about excluding WIP, see Interpretation Bulletin IT-457, Election by Professionals to Exclude Work in Progress from Income.

Line F - Adjusted professional fees

Enter your professional fees plus your WIP for the start of the year if you excluded it at the end of last year, minus any GST and PST, or HST, included in your fees, and your WIP at the end of the year if you elect to exclude it.

If you elected to use the quick method option to calculate your GST/HST remittances, read the note in “Line D – Professional fees” to calculate your adjusted professional fees.

Enter this amount on line 8000 in Part 3.

Part 3 – Gross business or professional income

Line 8000 - Adjusted gross sales or adjusted professional fees

If you are completing Form T2125 for a business activity, enter your adjusted gross sales from line C in Part 1.

If you are completing Form T2125 for a professional activity, enter your adjusted professional fees from line F in Part 2.

Line 8290 - Reserves deducted last year

Include in your 2009 income any reserves you deducted for 2008. For more details, read “Allowable reserves”.

Line 8230 - Other income

Enter the total income you received from other sources. Some examples of other income you would report on this line are:

• a recovery of an amount you wrote off as a bad debt in a previous year;
• the value of vacation trips or other prizes awarded to you because of your business or professional activities;
• payments for land you leased for petroleum or natural gas exploration. For more information, see Interpretation Bulletin IT-200, Surface Rentals and Farming Operations; and
• grants, subsidies, incentives, or assistance you get from a government, government agency, or non-government agency. As input tax credits (ITCs) are considered government assistance, include on this line the amount you claimed on line 108 of Form GST34. If you used the quick method option to calculate your GST/HST remittances, the amount on line 108 of Form GST34 includes the 1% credit (maximum $300) that you claimed on line 107 of that form. For more information, see Interpretation Bulletin IT-273, Government Assistance – General Comments.

Note
Report the amount of the GST/HST rebate for partners that relates to eligible expenses other than CCA on line 9974 in Part 6 on page 2 of Form T2125. Read “Part 6 – Your net income (loss)”.

Also, do not include in income any other rebate, grant, or assistance you receive, but subtract that amount from the applicable expense or the cost of capital property to which it relates. If the rebate, grant, or assistance relates to a depreciable asset, subtract the amount you received from the asset's capital cost. This will affect the amount of CCA you can claim for that asset. For information about CCA read Chapter 4. If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim for the investment tax credit.

See Form T2038(IND), Investment Tax Credit (Individuals), for details. If you cannot apply the rebate, grant, or assistance to reduce a particular expense or an asset's capital cost, include the total on line 8230, “Other income”. This amount must be included in income to the extent that it was not used to reduce the cost of a property or the amount of an outlay or expense.

Line 8299 - Gross business or professional income

Enter your gross business or professional income. This is your adjusted gross sales or adjusted professional fees (line 8000) plus any reserves deducted last year (line 8290) and any other income (line 8230). Enter this amount on the appropriate line of your income tax return.

Note
You have to register for GST/HST if you provide taxable supplies in Canada and your total revenues from taxable supplies (before expenses) from all your businesses are more than $30,000 over the last four consecutive calendar quarters or in any single calendar quarter.

Part 4 – Cost of goods sold and gross profit

Complete this part if you have a business and your business buys goods for resale or makes goods for sale. Claim the cost of the goods you buy or make for sale in the fiscal period in which you sell them. Enter only the business part of the costs on the form.

To calculate your cost of goods sold, you need to know the following:

• the value of your inventory at the start of your fiscal period;
• the value of your inventory at the end of your fiscal period; and
• the cost of your purchases (net of discounts) for the fiscal period.

Line 8300 - Opening inventory and
Line 8500 – Closing inventory

Enter your opening and closing inventory on the appropriate lines. These amounts must include raw materials, goods in process, and finished goods. The way you value your inventory is important when you determine your income. For income tax purposes, choose one of the following two methods:

• value your entire inventory at its fair market value (FMV) (read the definition). Use either the price you would pay to replace an item or the amount you would get if you sold an item; or
• value individual items in your inventory at either their FMV or their cost, whichever is less. Cost is the price you incur for an item. Cost also includes any expenses you incur to bring the item to the business location and to put it in a condition so that you can use it in the business. When you cannot easily tell one item from another, you can value the items as a group.

Once you have chosen a method for valuing your inventory, you have to use that method consistently.

If this is your first year of reporting business income, you can choose either method to value your inventory. In your first year of business, you will not have an amount to enter on line 8300. If this is not your first year of business, continue to use the same method you used in past years. The value of your inventory at the start of a fiscal period has to be the same as the value of your inventory at the end of the preceding fiscal period.

Do an actual stock count at the end of each fiscal period, unless you use a perpetual inventory system. Under this system, you do periodic stock counts and keep a written record of each count. Remember to keep your inventory records with your other records.

For more information about valuing inventory, see Interpretation Bulletin IT-473, Inventory Valuation. Businesses that are adventures or concerns in the nature of trade must value their inventory at cost.

Inventory value of an artistic endeavour

An artistic endeavour occurs when you are in the business of creating paintings, murals, original prints, etchings, drawings, sculptures, or similar works of art. An artistic endeavour does not include reproducing works of art.

When you calculate your income from an artistic endeavour, you can choose to value your closing inventory at nil. To do this, show your closing inventory as “nil” on line 8500. Your choice stays in effect for each following year, unless you request a change from CRA and we allow the change. This option may not be used if you did not create the work of art or you are in the business of reproducing works of art.

For more information, see Interpretation Bulletin IT-504, Visual Artists and Writers.

Gifts of inventory by an artist

If you donate a work of art you created, you may not have to report a profit on your donation for income tax purposes. To benefit from this tax treatment, your gift must fall under the definition of gifts of certified cultural property. For more information about gifts and donations, see Pamphlet P113, Gifts and Income Tax.

Line 8320 - Purchases during the year (net of returns, allowances, and discounts)

The cost of goods you buy to resell or use in manufacturing other goods includes costs such as delivery, freight, and express charges. Enter the amount of your net purchases during the year (your total purchases minus any discounts you received).

Sometimes you might use goods you bought for the business for personal use. When this happens, you have to subtract the cost of these goods from your total purchases for the year. Do this before you enter the amount of the purchases.

Line 8340 - Direct wage costs

Include the remuneration you paid to employees who work directly in the manufacture of your goods. Do not include:

• indirect wages;
• a salary paid to yourself or a partner (read “Details of equity”); and
• withdrawals you may have made from the business (see “Details of equity”).

For more information, read “Line 9060 - Salaries, wages, and benefits”.

Line 8360 - Subcontracts

Enter all the costs of hiring outside help to perform tasks related to the goods you sell.

Line 8519 - Gross profit

Enter your gross profit, which is your gross business income (line 8299 in Part 3 on page 1) minus your cost of goods sold (line 8518).

The following example summarizes this chapter. Since the rules for calculating business and professional income are similar, our example focuses on a business.

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Chapter 3 – Expenses

This chapter discusses the more common expenses you might incur to earn income from your business (including self-employed commission sales) or professional activities. Incur means that you paid or will have to pay the expense.

Current or capital expenses?

Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. However, an increase in a property's market value because of an expense is not a major factor in deciding whether the expense is capital or current. To decide whether an amount is a current expense or a capital expense, consider your answers to the questions on the following chart:

Criteria	Capital expenses	Current expenses
Does the expense provide a lasting benefit?	A capital expense generally gives a lasting benefit or advantage. For example, the cost of putting vinyl siding on the exterior walls of a wooden house is a capital expense.	A current expense is one that usually recurs after a short period. For example, the cost of painting the exterior of a wooden house is a current expense.
Does the expense maintain or improve the property?	The cost of a repair that improves a property beyond its original condition is probably a capital expense. If you replace wooden steps with concrete steps, the cost is a capital expense.	An expense that simply restores a property to its original condition is usually a current expense. For example, the cost of repairing wooden steps is a current expense.
Is the expense for a part of a property or for a separate asset?	The cost of replacing a separate asset within that property is a capital expense. For example, the cost of buying a compressor for use in your business operation is a capital expense. The reason is that a compressor is a separate asset and is not a part of the building.	The cost of repairing a property by replacing one of its parts is usually a current expense. For instance, electrical wiring is part of a building. Therefore, an amount you spend to rewire is usually a current expense, as long as the rewiring does not improve the property beyond its original condition.
What is the value of the expense? (Use this test only if you cannot determine whether an expense is capital or current by considering the three previous tests.)	Compare the cost of the expense to the value of the property. Generally, if the cost is considerable in relation to the value of the property, it is a capital expense.	This test is not a determining factor by itself. You might spend a large amount of money for maintenance and repairs to your property all at once. If this cost was for ordinary maintenance that was not done when it was necessary, it is a maintenance expense, and you deduct it as a current expense.
Is the expense for repairs to the used property that you acquired made to put it in suitable condition for use?	The cost of repairing used property that you acquired to put it in a suitable condition for use in your business is considered a capital expense even though in other circumstances it would be treated as a current operating expense.	Where the repairs were for ordinary maintenance of a property that you already had in your business, the expense is usually current.
Is the expense for repairs made to an asset in order to sell it?	The cost of repairs made in anticipation of the sale of a property or as a condition of sale is regarded as a capital expense.	Where the repairs would have been made anyway, but a sale was negotiated during the course of the repairs or after their completion, the cost is regarded as current.

For more information, read Chapter 4 and Interpretation Bulletin IT-128, Capital Cost Allowance - Depreciable Property.

You cannot claim expenses you incur to buy capital property. However, as a rule, you can deduct any reasonable current expense you incur to earn business or professional income. The deductible expenses include any GST/HST you incur on these expenses less the amount of any input tax credit claimed. Also, since you cannot deduct personal expenses, enter only the business part of expenses on Form T2125.

Note
When you claim the GST/HST you paid on your business expenses as an input tax credit, reduce the amounts of the business expenses you show on Form T2125 by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable. Similarly, subtract any other rebate, grant, or assistance from the expense to which it applies. Enter the net figure on the proper line. Any such assistance you claim for the purchase of depreciable property used in your business will affect your claim for capital cost allowance (CCA). If you cannot apply the rebate, grant, or assistance you received to reduce a particular expense, or to reduce an asset's capital cost, include the total on line 8230, “Other income”, in Part 3 of Form T2125. For more information, read “Grants, subsidies, or other incentives or inducements”.

“Enter only the business part” means that any of the following are not included as part of your expenses:

• salary or wages (including drawings) paid to self, partner(s), or both;
• cost of saleable goods or services that you, your family, or your partners and their families used (including items such as food, home maintenance, or business properties);
• donations to charities and political contributions;
• interest and penalties you paid on your income tax;
• life insurance premiums;
• the part of any expenses that can be attributed to non-business use of business property; and
• most fines and penalties imposed after March 22, 2004, under the law of Canada or a province or a foreign country.

Prepaid expenses

A prepaid expense is an expense you pay for ahead of time. Under the accrual method of accounting, claim any expense you prepay in the year or years in which you get the related benefit. For example, suppose your fiscal year-end is December 31, 2009. On June 30, 2009, you prepay the rent on your store for a full year (July 1, 2009, to June 30, 2010). You can only deduct one-half of this rent as an expense in 2009. You deduct the other half as an expense in 2010.

For more information, see Interpretation Bulletin IT-417, Prepaid Expenses and Deferred Charges.

Part 5 – Net income (loss) before adjustments

Line 8521 - Advertising

You can deduct expenses for advertising, including advertisements in Canadian newspapers and on Canadian television and radio stations. You can also include on this line any amount you paid as a finder's fee.

Certain restrictions apply to the amount of the expense you can deduct for advertising in a periodical. You can deduct all the expense if your advertising is directed to a Canadian market and the original editorial content in the issue is 80% or more of the total non-advertising content in the issue.

You can deduct 50% of the expense if your advertising in a periodical is directed to a Canadian market and the original editorial content in the issue is less than 80% of the total non-advertising content in the issue.

Also, you cannot deduct expenses for advertising directed mainly to a Canadian market when you advertise with a foreign broadcaster.

Line 8523 - Meals and entertainment

The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less.

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event. However, special rules can affect your claim for meals in these cases. For more details, read “Line 9200 – Travel” and “Convention expenses”.

For 2009, 70% of expenses for food and beverages consumed by a long-haul truck driver during an eligible travel period are deductible.

Note
This deductible amount will increase to 75% in 2010 and to 80% after 2010.

An eligible travel period is a period of at least 24 continuous hours throughout which the driver is away from the municipality and metropolitan area in which the driver resides (the residential location) and is driving a long-haul truck that transports goods to, or from, a location that is beyond a radius of at least 160 kilometres from the residential location.

These limits do not apply if:

• your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel, or motel);
• you bill your client or customer for the meal and entertainment costs, and you show these costs on the bill;
• you include the amount of meal and entertainment expenses in an employee's income or would include them if the employee did not work at a remote or special work location; in addition, the amount is not paid or payable in respect of a conference, convention, seminar, or similar event; the special work location must be at least 30 kilometres from the closest urban centre that has a population of 40,000 or more people;
• you incur meal and entertainment expenses to provide a Christmas party or similar event, and you invite all your employees from a particular location; however, you are limited to six of these events each year;
• the meal and entertainment expenses you incur are for a fund-raising event that was mainly for the benefit of a registered charity; or
• you provide meals to an employee housed at a temporary work camp constructed or installed specifically for the purpose of providing meals and accommodation to employees working at a construction site; in addition, the employee cannot be expected to return home daily.

Entertainment expenses include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges, and room rentals such as for hospitality suites.

For more information, see Interpretation Bulletin IT-518, Food, Beverages, and Entertainment Expenses.

Line 8590 - Bad debts

You can deduct an amount for a bad debt if:

• you had determined that an account receivable is a bad debt in the year; and
• you had already included the receivable in income.

For more information, see Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts.

Line 8690 - Insurance

You can deduct all ordinary commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business. For more information about claiming your motor vehicle insurance costs, read “Line 9281 – Motor vehicle expenses”. The insurance costs related to business use of work space in your home have to be claimed on line 9945, “Business-use-of-home expenses”.

In most cases, you cannot deduct your life insurance premiums.

Line 8710 - Interest

You can deduct interest you incurred on money borrowed for business purposes or to acquire property for business purposes.

However, there are limits on:

• the interest you can deduct on money you borrow to buy a passenger vehicle, read “Interest”;
• the amount of interest you can deduct for vacant land. Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss. Also, you cannot deduct interest from other sources of income.

Fees, penalties, or bonuses paid for a loan

You can deduct the fee you pay to reduce the interest rate on your loan. You can also deduct any penalty or bonus a financial institution charges you to pay off your loan before it is due. Treat the fee, penalty, or bonus as prepaid interest and deduct it over the remaining original term of your loan. For example, if the term of your loan is five years and in the third year you pay a fee to reduce your interest rate, treat this fee as a prepaid expense and deduct it over the remaining term of the loan. For more information, read “Prepaid expenses”.

Fees deductible over five years

You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:

• application, appraisal, processing, and insurance fees;
• loan guarantee fees;
• loan brokerage and finder's fees; and
• legal fees related to financing.

You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% in 2009 and 20% in each of the four following years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.

However, if you repay the loan before the end of the five-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.

Fees deductible in the year incurred

If you incur standby charges, guarantee fees, service fees, or any other similar fees, you may be able to deduct them in full in the year you incur them. To do so, they have to relate only to that year. For more information, see Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate, and Expenses of Borrowing Money.

Interest deductible on property no longer used for business purposes

You may be able to deduct interest expenses for a property that you used for business purposes, even if you have stopped using the property for such purposes because you are no longer in business. For more information, see Information Bulletin IT-533, Interest Deductibility and Related Issues.

Interest on loans made against insurance policies

You can deduct interest you paid on a loan made against an insurance policy, as long as the insurer did not add the interest you paid to the adjusted cost base of the insurance policy. To claim the interest you paid for 2009, have the insurer verify the interest before June 16, 2010, on Form T2210, Verification of Policy Loan Interest by the Insurer.

Capitalizing interest

You can choose to capitalize interest on money you borrow:

• to buy depreciable property;
• to buy a resource property; or
• for exploration and development.

When you choose to capitalize interest, add the interest to the cost of the property or exploration and development costs instead of deducting the interest as an expense.

Interest related to work space in your home

The interest related to business use of work space in your home has to be claimed on line 9945, “Business-use-of-home expenses”. For more information, read “Business-use-of-home expenses”.

Line 8760 - Business tax, fees, licences, dues, memberships, and subscriptions

You can deduct all annual licence fees and business taxes you incur to run your business. You can also deduct annual dues or fees to keep your membership in a trade or commercial association. You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation, or sporting activities.

Line 8810 - Office expenses

You can deduct the cost of office expenses. These include small items such as pens, pencils, paper clips, stationery, and stamps. Office expenses do not include items such as calculators, filing cabinets, chairs, and desks. These are capital items. For more information on capital property, read Chapter 4.

Line 8811 - Supplies

You can deduct the cost of items used indirectly by the business to provide goods or services (for example, drugs and medication used by a veterinarian, or cleaning supplies used by a plumber).

Line 8860 - Legal, accounting, and other professional fees

Deduct the fees you incurred for external professional advice or services, including consulting fees.

You can deduct accounting and legal fees you incur to get advice and help in keeping your records. You can also deduct fees you incur for preparing and filing your income tax and GST/HST returns.

You can deduct accounting or legal fees you paid to have an objection or appeal prepared against an assessment for income tax, Canada Pension Plan or Quebec Pension Plan contributions, or Employment Insurance premiums. However, the full amount of these deductible fees must first be reduced by any reimbursement of these fees that you have received. Report the difference on line 232 of your income tax return. If you received a reimbursement in 2009 for the types of fees that you deducted in a previous year, report the amount you received on line 130 of your 2009 income tax return.

You cannot deduct legal and other fees you incur to buy a capital property. Instead, add these fees to the cost of the property. For more information on capital property, read Chapter 4.

For more details, see Interpretation Bulletin IT-99, Legal and Accounting Fees.

Line 8871 - Management and administration fees

You can deduct management and administration fees including bank charges incurred to operate your business. Do not include on this line employees' salaries, property taxes, or rents paid. You can claim these amounts elsewhere on Form T2125.

Line 8910 - Rent

You can deduct rent incurred for property used in your business. For example, you can deduct rent for the land and building where your business is situated. The rent expense related to the business use of work space in your home has to be claimed on line 9945, “Business-use-of-home expenses”. For more information, read “Business-use-of-home expenses”.

Line 8960 - Maintenance and repairs

You can deduct the cost of labour and materials for any minor repairs or maintenance done to property you use to earn income. However, you cannot deduct the value of your own labour.

You cannot deduct costs you incur for repairs that are capital in nature. However, you may be able to claim CCA. For more information about CCA, read Chapter 4.

The maintenance and repairs related to business use of work space in your home have to be claimed on line 9945, “Business-use-of-home expenses”. For more information, read “Business-use-of-home expenses”.

Line 9060 - Salaries, wages, and benefits

You can deduct gross salaries and other benefits you pay to employees. Do not include on this line salaries and wages described in “Line 8340 – Direct wage costs” or “Line 8360 – Subcontracts” or salaries and drawings of the owner(s) of the business described in “Line 9932 – Drawings in 2009”. Salaries or drawings paid or payable to you or your partners are not deductible. For more information, read “Details of equity” (page 3 of Form T2125).

The Canada Pension Plan (CPP) is for all workers, including the self-employed. Employers, employees, and most self-employed individuals have to contribute to the CPP fund. The CPP can provide basic benefits when you retire or if you become disabled. When you die, the CPP can provide benefits to your surviving spouse or common-law partner and dependent children under 25. For more information on contributions and benefits, visit the Service Canada Web site.

Quebec workers including the self-employed are covered under the Quebec Pension Plan (QPP).

As the employer, you can deduct your part of CPP or QPP contributions, Employment Insurance premiums, Provincial Parental Insurance Plan (PPIP) premiums (the PPIP is an income replacement plan for residents of Quebec – for details, contact Revenu Québec), and workers' compensation amounts payable on employees' remuneration. For information on making payroll deductions, go to Payroll page.

You can also deduct any insurance premiums you pay for an employee for a sickness, an accident, a disability, or an income insurance plan.

You can deduct the salary you pay to your child, as long as you meet all these conditions:

• you pay the salary;
• the work your child does is necessary for earning business or professional income; and
• the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else.

Keep documents to support the salary you pay your child. If you pay your child by cheque, keep the cancelled cheque. If you pay cash, have the child sign a receipt.

Instead of cash, you may pay your child with a product from your business. When you do this, claim the value of the product as an expense and add to your gross sales an amount equal to the value of the product. Your child has to include the value of the product in his or her income.

You can also deduct the salary you pay to your spouse or common-law partner. When you pay your spouse or common-law partner a salary, use the same rules that apply to paying your child.

Report the salaries you pay to your children and spouse or common-law partner on T4 slips, the same as you would for other employees. However, you cannot claim as an expense the value of board and lodging you provide to your dependent children and spouse or common-law partner.

Line 9180 - Property taxes

You can deduct property taxes you incurred for property used in your business. For example, you can deduct property taxes for the land and building where your business is situated. The property tax related to the business use of work space in your home has to be claimed on line 9945, “Business-use-of-home expenses”. For more information, read “Business-use-of-home expenses”.

Line 9200 - Travel

You can deduct travel expenses you incur to earn business and professional income. Travel expenses include public transportation fares, hotel accommodation, and meals.

In most cases, the 50% limit applies to the cost of meals, beverages, and entertainment when you travel. We discuss this limit in “Line 8523 – Meals and entertainment”.

The 50% limit also applies to the cost of food and beverages served and entertainment enjoyed when you travel on an airplane, train, or bus when the ticket price does not include such amounts.

Line 9220 - Telephone and utilities

You can deduct expenses for telephone and utilities, such as gas, oil, electricity, and water, if you incurred the expenses to earn income. The expenses for utilities that are related to the business use of work space in your home have to be claimed on line 9945, “Business-use-of-home expenses”. For more information, see “Business-use-of-home expenses”.

Line 9224 - Fuel costs

You can deduct the cost of fuel (including gasoline, diesel, and propane), motor oil, and lubricants used in your business. For information about claiming the fuel used in your motor vehicle, read “Line 9281 – Motor vehicle expenses”. The cost of fuel related to the business use of work space in your home has to be claimed on line 9945, “Business-use-of-home expenses”.

Line 9275 - Delivery, freight, and express

You can deduct the cost incurred in the year of delivery, freight, and express that relates to your business.

Line 9281 - Motor vehicle expenses

You can deduct expenses you incur to run a motor vehicle you use to earn business income. Complete “Chart A - Motor vehicle expenses” on page 5 of Form T2125. The chart will help you calculate the amount of motor vehicle expenses you can deduct. If you are a partner in a partnership and you incur personal motor vehicle expenses for the business, claim those expenses on line 9943, “Other amounts deductible from your share of net partnership income (loss)”, in Part 6 on page 2 of the form. For more information, read Line 9943.

Keeping records

You can deduct motor vehicle expenses only when they are reasonable and you have receipts to support them. To get the full benefit of your claim for each vehicle, keep a record of the total kilometres you drive and the kilometres you drive to earn business income. For each business trip, list the date, destination, purpose, and number of kilometres you drive. Record the odometer reading of each vehicle at the start and end of the fiscal period.

If you change motor vehicles during the fiscal period, record the dates of the changes and the odometer readings at the time you buy, sell, or trade the vehicles.

What type of vehicle do you own?

The kind of vehicle you own can affect the expenses you deduct. For income tax purposes, there are three types of vehicles:

• motor vehicles;
• automobiles; and
• passenger vehicles.

If you own or lease a passenger vehicle, there can be a limit on the amounts you can deduct for CCA, interest, and leasing costs.

We explain the CCA limits in “Passenger vehicles - Class 10.1 (30%)”, the interest limits, and the leasing costs.

Motor vehicle - This is 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.

Automobile - This is a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers.

An automobile does not include:

• an ambulance;
• clearly marked police and fire emergency response vehicles;
• 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 while earning or producing income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community having a population of at least 40,000 persons; and
• a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment.

Passenger vehicle - This is an automobile you bought after June 17, 1987. A passenger vehicle is also an automobile that you leased under an agreement you entered into, extended, or renewed after June 17, 1987.

Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles. They are subject to the limits for CCA, interest, and leasing.

To help you determine what type of vehicle you have, see “Vehicle definitions”. The chart does not cover every situation, but it gives some of the main definitions to help you determine the type of vehicle you own.

The chart is for a vehicle you buy or lease after June 17, 1987, and use to earn business income.

Deductible expenses

The types of expenses you can claim on line 9281 include:

• licence and registration fees;
• fuel costs;
• insurance;
• interest on money borrowed to buy a motor vehicle;
• maintenance and repairs; and
• leasing costs.

You can also claim CCA, but you enter this amount on line 9936. For information about CCA, read Chapter 4.

Business use of a motor vehicle

If you use a motor vehicle for business and personal use, you can deduct only the part of the expenses that you paid to earn income. However, you can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicle. To support the amount you can deduct, keep a record of the total kilometres you drive and the kilometres you drive to earn income.

Joint ownership

If you and another person own or lease a passenger vehicle, the limits on CCA, interest, and leasing still apply. As a joint owner, the total amount you and any other owners deduct cannot be more than the amount that one person owning or leasing the vehicle could deduct.

More than one vehicle

If you use more than one motor vehicle for your business, for each vehicle keep a separate record that shows the total and business kilometres you drive, and the cost to run and maintain each vehicle. Calculate each vehicle's expenses separately.

For more information, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Vehicle definitions

Type of vehicle	Seating (includes driver)	Business use in year bought or leased	Vehicle definition
Coupe, sedan, station wagon, sports car, or luxury car	1 to 9	1% to 100%	passenger
Pickup truck used to transport goods or equipment	1 to 3	more than 50%	motor
Pickup truck (other than above)*	1 to 3	1% to 100%	passenger
Pickup truck with extended cab used to transport goods, equipment, or passengers	4 to 9	90% or more	motor
Pickup truck with extended cab (other than above)*	4 to 9	1% to 100%	passenger
Sport utility used to transport goods, equipment, or passengers	4 to 9	90% or more	motor
Sport utility (other than above)	4 to 9	1% to 100%	passenger
Van or minivan used to transport goods or equipment	1 to 3	more than 50%	motor
Van or minivan (other than above)	1 to 3	1% to 100%	passenger
Van or minivan used to transport goods, equipment, or passengers	4 to 9	90% or more	motor
Van or minivan (other than above)	4 to 9	1% to 100%	passenger

*A vehicle in this category that is used more than 50% to transport goods, equipment, or passengers while earning or producing income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community having a population of 40,000 persons is considered a motor vehicle.

Interest

You can deduct interest on money you borrow to buy a motor vehicle, automobile, or passenger vehicle you use to earn income. Include the interest as an expense when you calculate your allowable motor vehicle expenses.

When you use a passenger vehicle to earn income, there is a limit on the amount of interest you can deduct. To calculate the amount of interest you can deduct, complete “Chart B - Available interest expense for passenger vehicles” on page 5 of Form T2125.

Leasing costs for a Passenger Vehicle

You can deduct amounts you incur to lease a motor vehicle you use to earn income. Include these amounts on line 9281.

When you use a passenger vehicle to earn income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, complete “Chart C - Eligible leasing costs for passenger vehicles” on page 5 of Form T2125.

If the lease agreement for your passenger vehicle includes items such as insurance, maintenance, and taxes, include them as part of the lease charges on line 1 of Chart C.

Note
Generally, leases include taxes (GST and PST, or HST), but not items such as insurance and maintenance. You have to pay these amounts separately. Include the taxes on line 1 of Chart C, and list the items such as insurance and maintenance on the appropriate lines of “Chart A - Motor vehicle expenses”.

The GST/HST rate that you should use to complete “Chart C - Eligible leasing costs for passenger vehicles” on page 5 of Form T2125 is the rate that was in effect at the start of each lease interval. For your 2009 fiscal period, use the GST rate of 5% or the HST rate of 13% to complete Chart C.

To show you how to calculate your eligible leasing costs, complete the following example using Chart C on page 5 of Form T2125.

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If this is your situation you will not be able to use “Chart C - Eligible leasing costs for passenger vehicles” on page 5 of Form T2125.

Imputed interest is interest that would be owing to you if interest were paid on money deposited to lease a passenger vehicle. You calculate imputed interest for leasing costs on a passenger vehicle only if all the following apply:

• one or more deposits were made for the leased passenger vehicle;
• the deposit is, or the deposits are, refundable; and
• the total of the deposits is more than $1,000.

For more information, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Line 9935 - Allowance on eligible capital property

If you buy a property such as goodwill or a franchise for your business, you might be able to claim an annual allowance. For more information, read Chapter 5.

Line 9936 - Capital cost allowance (CCA)

If you use a property you own such as a building, a motor vehicle, or equipment in your business, you might be able to claim CCA. For more information, read Chapter 4.

Line 9270 - Other expenses

There are expenses you can incur to earn income, other than those listed on Form T2125. We cover some of them in the following sections. Enter on this line the total of other expenses you incurred to earn income, as long as you did not include them on a previous line. You do not have to list these expenses on the form.

Disability-related modifications

You can deduct outlays and expenses you incur for eligible disability-related modifications made to a building in the year you paid them, instead of having to add them to the capital cost of your building. Eligible disability-related modifications include changes you make to accommodate wheelchairs, such as:

• installing hand-activated power door openers;
• installing interior and exterior ramps; and
• modifying a bathroom, elevator, or doorway.

You can also deduct expenses paid to install or get the following disability-related devices and equipment:

• elevator car-position indicators (such as braille panels and audio indicators);
• visual fire-alarm indicators;
• telephone devices to help people who are hard of hearing; and
• listening devices for group meetings.

In addition, you may be able to deduct expenses for disability specific computer software and hardware attachments.

Computer and other equipment leasing costs

If you lease computers, cellular telephones, fax machines, and other equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your business income. You can also deduct the percentage of airtime expenses for a cellular telephone that reasonably relates to earning your business income.

If you buy a computer, cellular telephone, fax machine, or other such equipment, you cannot deduct the cost. You can deduct CCA and interest you paid on money you borrowed to buy this equipment that reasonably relates to earning your business income. For more information on CCA, read Chapter 4.

Leasing costs

Deduct the lease payments you incurred in the year for property used in your business. If you lease a passenger vehicle, read “Line 9281 - Motor vehicle expenses”.

If you entered into a lease agreement after April 26, 1989, you can choose to treat your lease payments as combined payments of principal and interest. However, you and the person you are leasing from have to agree to treat the payments this way. In this case, we consider that you:

• bought the property rather than leased it; and
• borrowed an amount equal to the fair market value (FMV) of the leased property.

You can deduct the interest part of the payment as an expense. You can also claim CCA on the property.

You can make this choice as long as the property qualifies and the total FMV of all the property subject to the lease is more than $25,000. Digging equipment that you lease with an FMV of $35,000 is an example of property that qualifies. However, office furniture and automobiles often do not qualify.

To treat your lease this way, file one of these forms with your income tax return for the year you make the lease agreement:

• Form T2145, Election in Respect of the Leasing of Property; or
• Form T2146, Election in Respect of Assigned Leases or Subleased Property.

Convention expenses

You can deduct the cost of going to a maximum of two conventions a year. The conventions have to:

• relate to your business or professional activity; and
• be held by a business or professional organization within the geographical area where the organization normally conducts its business.

This second limit may not apply if an organization from another country sponsors the convention and the convention relates to your business or professional activity.

Sometimes, convention fees include the cost of food, beverages, or entertainment. However, the convention organizer may not show these amounts separately on your bill. If this is the case, subtract $50 from the total convention fee for each day the organizer provides food, beverages, or entertainment.

You can deduct this daily $50 amount as a meal and entertainment expense. However, the 50% limit applies to the daily $50 amount. We discuss the 50% limit on “Line 8523 - Meals and entertainment”.

Food, beverages, or entertainment at a convention do not include incidental items such as coffee and doughnuts available at meetings or receptions at the convention.

For more information, see Interpretation Bulletin IT-131, Convention Expenses.

Allowable reserves

You can deduct an amount for a reserve, contingent account, or a sinking fund as long as the Income Tax Act allows it. The amount you deduct has to be reasonable. You can find details about allowable reserves in the following publications:

• Interpretation Bulletin IT-154, Special Reserves;
• Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts;
• Guide T4037, Capital Gains, and Form T2017, Summary of Reserves on Dispositions of Capital Property; and
• Guide T4011, Preparing Returns for Deceased Persons.

Private health services plan (PHSP) premiums

You can deduct premiums paid or payable to a private health services plan (PHSP) if you meet the following conditions:

• your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total income;* or
• your income from sources other than self-employment** is $10,000 or less for the current or previous year;
• you are actively engaged in your business on a regular and continuous basis, individually or as a partner; and
• the premiums are paid or payable to insure yourself, your spouse or common-law partner, or any member of your household.

*For the purpose of this claim, calculate your total income as follows:

- the amount from line 150 of your 2008 or 2009 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus

- the amounts you entered on lines 207, 212, 217, 221, 229, 231, and 232 on your 2008 or 2009 income tax return, whichever applies.

**For the purpose of this claim, calculate your income from sources other than self-employment as follows:

- the amount from line 150 of your 2008 or 2009 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus

- the amounts you entered on lines 135, 137, 139, 141, 143 (excluding business losses which reduced the net amount reported on those lines), 207, 212, 217, 221, 229, 231, and 232 on your 2008 or 2009 income tax return, whichever applies.

You cannot claim a deduction for PHSP premiums if another person deducted the amount, or if you or anyone else claimed the premiums as a medical expense. For your premiums to be deductible, your PHSP coverage has to be paid or payable under a contract with one of the following:

• an insurance company;
• a trust company;
• a person or partnership in the business of administering PHSPs;
• a tax-exempt trade union of which you or the majority of your employees are members; or
• a tax-exempt business organization or tax-exempt professional organization of which you are a member.

For more information on PHSPs, see Interpretation Bulletin IT-339, Meaning of “Private Health Services Plan”.

Definitions

For the purposes of this claim, the following definitions apply:

• Arm's length employees are, generally, employees who are not related to you and not carrying on your business with you, for example, as your partners. See “Non-arm's length transaction” for it's definition.
• Qualified employees are arm's length, full-time employees who have three months service since they last became employed with a business carried on by you, a business in which you are a majority interest partner, or a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.
• Insurable persons are people to whom coverage is extended and who are either:
  • qualified employees;
  • people who would be qualified employees if they had worked for you for three months; or
  • people carrying on your business (including yourself and your partners).

How to calculate your maximum deduction for PHSPs

The following sections explain how to calculate your maximum PHSP deduction based on whether you had employees and whether you insured them throughout the year or part of the year. Find the section that describes your situation.

If you did not have any employees throughout 2009

Your PHSP deduction is restricted by a dollar limit on an annual basis. The limit is a maximum of:

• $1,500 for yourself;
• $1,500 for each of your spouse or common-law partner and household members that are 18 years of age or older at the start of the period when they were insured; and
• $750 for each household member under the age of 18 at the start of the period.

The maximum deduction is also limited by the number of days the person was insured. Calculate your allowable maximum for the year by using the following formula:

(A ÷ 365) × (B + C), where:

A	is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B	equals $1,500 × the number of people covered under the plan that includes you, your spouse or common-law partner, and household members that are 18 years of age or older; and
C	equals $750 × the number of household members under the age of 18 that were insured during the period.

If you had employees throughout 2009

If you had at least one qualified employee throughout all of 2009, and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way. Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid or payable for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, do the following calculation:

X × Y = Z, where:

X	equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equivalent to that provided to a particular employee and his or her spouse or common-law partner and household members;
Y	equals the percentage of the premium you pay for that particular employee; and
Z	equals your limit based on that particular employee.

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is then the least of the amounts you calculate for each employee.

Note
If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. However, you may be able to claim them as medical expenses.

If you had employees throughout 2009, but the number of arm's length employees you insured was less than 50% of all the insurable persons in your business, your maximum allowable deduction is the lesser of the following two amounts:

Amount 1

Determine this amount by using the following formula:

A ÷ 365 × (B + C), where:

A	is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B	equals $1,500 × the number of people covered under the plan that includes you, your spouse or common-law partner and household members that are 18 years of age or older; and
C	equals $750 × the number of household members under the age of 18 that were insured during the period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula above. If you did not have at least one qualified employee, the limit in amount 1 will apply.

If you had employees for part of the year

For the part of the year when you had at least one qualified employee and your insurable arm's length employees represented at least 50% of all the insurable persons in your business, calculate your limit for that period by using the X × Y = Z formula in the previous section, “If you had employees throughout 2009”.

For the rest of the year when you had no employees or when your insurable arm's length employees represented less than 50% of all of the insurable persons in your business, your deduction limit for that remaining period is the lesser of the Amount 1 and Amount 2, calculated in the same way as in the previous section.

Undeducted premiums

If you deduct only a part of your PHSP premium on line 9270, and you paid the premium in the year, you can include the undeducted balance in the calculation of your non-refundable medical expense tax credit. For details, see line 330 in your General Income Tax and Benefit Guide - 2009.

Line 9369 - Net income (loss) before adjustments

Enter on this line the gross income minus the deductible expenses. If you are a partner in a partnership, this amount is the net business income of all partners.

Part 6 – Your net income (loss)

On line M of Form T2125, show your share of the amount on line 9369, “Net income (loss) before adjustments”. This is the amount left after you subtract the amounts the other partners are responsible for reporting as specified in the partnership agreement.

Enter the total of lines M and N on line O.

In the chart, “Details of other partners”, on page 3 of Form T2125, show the full names and addresses of the other partners, as well as a breakdown of their shares of the net income or loss from line 9369 and their percentages of ownership shares in the partnership.

Line 9943 - Other amounts deductible from your share of net partnership income (loss)

Enter the total of any extra expenses you incurred to earn your share of the partnership income (loss), such as the business part of allowable motor vehicle expenses. These expenses must not have been claimed anywhere else on the form.

Claim these amounts only if the partnership did not repay you for them. The limits discussed earlier in this chapter also apply to these expenses.

Complete the chart “Other amounts deductible from your share of net partnership income (loss)” on page 3 of Form T2125 to list the other amounts you can deduct from your share of the partnership's net income or loss.

Line 9945 - Business-use-of-home expenses

You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:

• it is your principal place of business; or
• you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients.

You can deduct a part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct a part of your property taxes, mortgage interest, and CCA. To calculate the part you can deduct, use a reasonable basis such as the area of the work space divided by the total area of your home.

If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct. If you run the business for only part of the week or year, reduce your claim accordingly.

For more information, see Interpretation Bulletin IT-514, Work Space in Home Expenses.

The capital gain and recapture rules will apply if you deduct CCA on the business-use part of your home and you later sell your home. For more information about these rules, read Chapter 4.

If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the work space.

The amount you can deduct for business-use-of-home expenses cannot be more than your net income from the business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss. You can deduct the lesser of the following amounts:

• any amount you carry forward from 2008, plus the business-use-of-home expenses you incur in 2009; or
• the amount on line O of Form T2125.

In your next fiscal period, you can use any expense you could not deduct in 2009, as long as you meet one of the two previous conditions. You also use the same rules.

You can use the chart “Calculation of business-use-of-home expenses” on page 3 of Form T2125 to calculate your allowable claim for business-use-of-home expenses. Enter on line 9945 your share of the amount on line 3 in the chart. The expenses you claim on line 9945 must not be claimed elsewhere on Form T2125.

To see how to calculate your business-use-of-home expenses, read the following example:

Line 9946 - Your net income (loss)

On the relevant lines of your income tax return, enter your total gross (from line 8299 in Part 3 on page 1) and total net business or professional income or loss (from line 9946 in Part 6 on page 2). Include the total income or losses from all your business and professional activities (the total of these lines from all completed T2125 forms).

If you have a business or professional loss that is more than all your other sources of income, you may have a non-capital loss for the year. To apply this loss against income from previous years, complete and attach a copy of Form T1A, Request for Loss Carryback, to your income tax return. For more details about loss carrybacks, see Interpretation Bulletin IT-232, Losses - Their Deductibility in the Loss Year or in Other Years.

Details of other partners

If you are a partner in a partnership that does not have to file a partnership information return (read Chapter 1 for these requirements), complete the chart “Details of other partners” on page 3 of Form T2125.

If you are a partner in a partnership that has to file a partnership information return, do not complete this chart.

Details of equity (page 3 of Form T2125)

If you are a partner in a partnership that has to file a partnership information return, do not complete this section.

Line 9931 - Total business liabilities

A liability is a debt or obligation of a business. Total business liabilities are the total of all amounts your business or professional activity owes at the end of its fiscal period.

Total business liabilities include:

• accounts payable;
• notes payable;
• taxes payable;
• unpaid salaries, wages, and benefits;
• interest payable;
• deferred or unearned revenues;
• loans payable;
• mortgages payable; and
• any other outstanding balance related to the business.

Line 9932 - Drawings in 2009

A drawing is any withdrawal of cash (including salaries), other assets, or services of a business by the proprietor or partners. This includes such transactions by the proprietor or partners (or family members) as withdrawing cash for non-business use, and using business assets or services for personal use. Include the cost or value of personal use of business assets or services in your drawings for the year.

Line 9933 - Capital contributions in 2009

A capital contribution is cash or other assets you added to the business during its fiscal period. This includes personal funds you added to the business account, business debts you paid with personal funds, and personal assets you transferred to the business.

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Chapter 4 – Capital Cost Allowance (CCA)

What is capital cost allowance?

You might acquire a depreciable property, such as a building, furniture, or equipment, to use in your business or professional activities. You cannot deduct the cost of the property when you calculate your net business or professional income for the year.

However, since these properties wear out or become obsolete over time, you can deduct their cost over a period of several years. The deduction for this is called capital cost allowance (CCA).

Definitions

To calculate your CCA claim, you will need to know the meaning of the following terms:

Available for use

You can usually claim CCA on a property only when it becomes available for use.

Property other than a building usually becomes available for use on the earlier of:

• the date you first use it to earn income;
• the second tax year after the year you acquire the property;
• the time just before you dispose of the property; or
• the time the property is delivered or made available to you and is capable of producing a saleable product or service.

A building or part of a building usually becomes available for use on whichever is earlier:

• the date you start using 90% or more of the building in your business;
• the second tax year after the year you acquire the building; or
• the time just before you dispose of the building.

A building that you are constructing, renovating, or altering usually becomes available for use on whichever is earlier:

• the date you complete the construction, renovation, or alteration;
• the date you start using 90% or more of the building in your business;
• the second tax year after the year you acquire the building; or
• the time just before you dispose of the building.

Capital cost

This is the amount on which you first claim CCA. The capital cost of a property is usually the total of:

• the purchase price (not including the cost of land, which is usually not depreciable, read the section “Land”);
• the part of your legal, accounting, engineering, installation, and other fees that relates to the buying or construction of 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); and
• 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.

Depreciable property

This is any property on which you can claim CCA. You usually group depreciable properties into classes. For example, diggers, drills, and tools acquired after May 1, 2006, that cost $500 or more belong to Class 8. You have to base your CCA claim on a rate assigned to each class of property.

Fair market value (FMV)

FMV is generally the highest dollar value that 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.

Non-arm's length transaction

A non-arm's length transaction includes a transaction between people who are related, such as members of a family. An example of a non-arm's length transaction is the sale of property between a husband and wife, or a parent and child. For more details on non-arm's length transactions, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Proceeds of disposition

The proceeds of disposition usually mean the selling price of a property. The proceeds of disposition are the amounts you receive, or that we consider you to have received, when you dispose of your property. This could include compensation you receive for property that someone destroys, expropriates, steals, or damages. Special rules may apply if you dispose of a building for less than both its undepreciated capital cost and for less than your capital cost. If this is the case, read “Special rules for disposing of a building in the year” for details.

For more details about proceeds of disposition, see Interpretation Bulletin IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release, and Interpretation Bulletin IT-285, Capital Cost Allowance - General Comments.

Undepreciated capital cost (UCC)

Generally, the UCC is 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.

How much CCA can you claim?

The CCA you can claim depends on the type of property you own and the date you acquired it. You group the depreciable property you own into classes. A specific rate of CCA generally applies to each class.

We explain the most common classes of property in “Classes of depreciable property”. We list most of the classes and their rates in the chart “CCA classes of commonly used business assets”.

Base your CCA claim on your fiscal period ending in 2009, and not the calendar year.

There are a few other things you should know about CCA:

• For the most part, use the declining balance method to calculate your CCA. This means that you claim CCA on the capital cost of the property minus the CCA you claimed in previous years, if any. The remaining balance declines over the years as you claim CCA.

• You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year. For example, if you do not have to pay income tax for the year, you may not want to claim CCA. Claiming CCA reduces the balance of the class by the amount of CCA claimed. As a result, the CCA available for future years will be reduced.
• In the year you acquire a property, you can usually claim CCA only on one-half of your net additions to a class. We explain this half year rule in “Column 6 - Adjustment for current-year additions”. The available-for-use rules discussed previously in this chapter may also affect the amount of CCA you can claim. For more information, read “Available-for-Use”.
• You cannot claim CCA on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets. For more details, see Interpretation Bulletin IT-481, Timber Resource Property and Timber Limits, and Interpretation Bulletin IT-501, Capital Cost Allowance - Logging Assets, and its Special Release.
• If you claim CCA and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Alternatively, you may be able to deduct an additional amount from your income as a terminal loss. For more information, read “Column 5 - UCC after additions and dispositions”.
• If you receive income from a quarry, a sand or gravel pit, or a woodlot, you can claim a type of allowance known as a depletion allowance. For more details, see Interpretation Bulletin IT-373, Woodlots, and Interpretation Bulletin IT-492, Capital Cost Allowance - Industrial Mineral Mines.
• If you are a partner in a partnership that gives you a T5013 slip, Statement of Partnership Income, or a T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, you cannot personally claim CCA. The T5013 or T5013A slip you receive will have already allocated to you a share of the partnership's CCA on the property.

You were asking…

Q.	How do I calculate my CCA claim if I start a business and my first fiscal period is from June 1, 2009, to December 31, 2009?
A.	If your fiscal period is less than 365 days, you have to prorate your CCA claim. Calculate your claim using the rules we discuss in this chapter. However, base your CCA claim on the number of days in your fiscal period compared to 365 days. In this case, your fiscal period is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can claim is $2,052 ($3,500 × 214/365).

For more details, see Interpretation Bulletin IT-285, Capital Cost Allowance - General Comments.

How do you make your claim?

To calculate your 2009 deduction for CCA, and any recaptured CCA and terminal losses, use Area A on page 4 of your Form T2125. For 2009, you can get information to help you complete Area A from other areas of the Form T2125 which you filed for 2008.

You may have acquired or disposed of buildings or equipment during the fiscal period. If so, complete the applicable areas B, C, D, or E before completing Area A.

You will find explanations on how to complete Area B and Area C in section “Column 3 - Cost of additions in the year”. You will find explanations on how to complete Area D and Area E in section “Column 4 - Proceeds of dispositions in the year”.

Note
Even if you are not claiming a deduction for CCA for 2009, complete the appropriate areas of the form to show any additions and dispositions during the year.

Column 1 - Class number

Enter the class numbers of your properties in this column. If this is the first year you are claiming CCA, read “Column 3 - Cost of additions in the year” before completing column 1. If you claimed CCA last year, you can get the class numbers of your properties from last year's form.

We discuss the more common types of depreciable properties in “Classes of depreciable property”, and we list most of the classes and their rates in the chart “CCA classes of commonly used business assets”.

Column 2 - Undepreciated capital cost (UCC) at the start of the year

If this is the first year you are claiming CCA, skip this column. Otherwise, enter in this column the UCC for each class at the end of last year. Enter the amounts from column 10 of your 2008 form.

From your UCC at the start of 2009, subtract any investment tax credit you claimed or were refunded in 2008. Also subtract any 2008 investment tax credit you carried back to a year before 2008.

You may have received in 2008 a GST/HST input tax credit for a passenger vehicle you used less than 90% for your business. In this case, subtract the amount of the credit you received from your 2009 opening UCC. Read the section “Grants, subsidies, or other incentives or inducements”.

Note
In 2009, you may be claiming, carrying back, or getting a refund of an investment tax credit. If you still have depreciable property in the class, you have to adjust, in 2010, the UCC of the class to which the property belongs. To do this, subtract the amount of the credit from the UCC at the start of 2010. When there is no property left in the class, report the amount of the investment tax credit as income in 2010.

Column 3 - Cost of additions in the year

If you acquire or make improvements to depreciable property in the year, we consider them to be additions to the class in which the property belongs. You should:

• complete Area B and Area C of your Form T2125 as explained below; and
• enter, in column 3 of Area A for each class, the figure from column 5 of each class in Area B and Area C.

If a chart asks for the personal part of a property, this refers to the part that you use personally, separate from the part you use for business. For example, if you use 25% of the building you live in for business, your personal part is the other 75%.

Do not include the value of your labour in the cost of a property you build or improve, include the cost of surveying or valuing a property you acquire. Remember that a property usually has to be available for use before you can claim CCA. Read the definition of available for use.

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and also in Area B or Area C, whichever applies. Include the amount of insurance proceeds considered as proceeds of disposition in column 4 of Area A, and in Area D or Area E, whichever applies.

If you replaced a lost or destroyed property within a year of the loss, special rules for replacement property may apply to you. For more information, see Interpretation Bulletin IT-259, Exchange of Property, and Interpretation Bulletin IT-491, Former Business Property, and its Special Release.

To find out if any of these special situations apply, read “Special situations”.

Area B - Details of equipment additions in the year

List the details of all equipment (including motor vehicles) you acquired or improved in 2009. Group the equipment into the applicable classes, and put each class on a separate line.

Equipment includes items you acquire to use in your business or professional activities to earn income or for maintenance. Examples are a cement mixer, a snow blower, or a lawn mower.

Enter on line 9925 the total business part of the cost of the equipment. You will find information about capital cost in the section “Capital cost”.

Area C - Details of building additions in the year

List the details of all buildings you acquired or improved in 2009. Group the buildings into the applicable classes, and put each class on a separate line.

Enter on line 9927 the total business part of the cost of the buildings. The cost includes the purchase price of the building, plus any related expenses that you should add to the capital cost of the building, such as legal fees, land transfer taxes, and mortgage fees. You will find information about capital cost in the section “Capital cost”.

Land

Generally, land is not a depreciable property. Therefore, you cannot usually claim CCA on its cost. If you acquire a property that includes both land and a building, enter in column 3 of Area C only the cost that relates to the building. To calculate the building's capital cost, you have to split any fees that relate to buying the property between the land and the building. Related fees may include legal and accounting fees.

Calculate the part of the related fees you can include in the capital cost of the building as follows:

building value ÷ total purchase price

×

legal accounting, or other fees

=

the part of the fees you can include in the building's cost

You do not have to split a fee if it relates specifically to the land or the building. In this case, you would add the amount of the fee to the cost to which it relates, either the land or the building.

Area F - Details of land additions and dispositions in the year

Enter the total cost of acquiring land in 2009 on line 9923. The cost includes the purchase price of the land plus any related expenses that you should add to the capital cost of the land, such as legal fees, land transfer taxes, and mortgage fees.

You cannot claim CCA on land. Do not enter this amount in column 3 of Area A.

Column 4 - Proceeds of dispositions in the year

Enter the details of your 2009 dispositions on your Form T2125 as explained below.

If you disposed of a depreciable property during the 2009 fiscal period, enter in column 3 of the appropriate dispositions area (Area D or Area E) one of the following amounts, whichever is less:

• your proceeds of disposition minus any related expenses; or
• the capital cost of the property.

Note
If a chart asks for the personal part of a property, this refers to the part that you use personally, separate from the part you use for business. For example, if you use 25% of the building you live in for business, your personal part is the other 75%.

Copy the numbers from column 5 for each class in Area D and Area E to column 4 of Area A for each class.

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and also in Area B or Area C, whichever applies. Include the amount of insurance proceeds considered as proceeds of disposition in column 4 of Area A, and in Area D or Area E, whichever applies.

If you sell a property for more than it cost, you will have a capital gain. You may be able to postpone or defer adding a capital gain or recapture of CCA to income. For more information, read the sections “Capital gains” and “Replacement property”.

If you replaced a lost or destroyed property within a year of the loss, special rules for replacement property may apply to you. See Interpretation Bulletin IT-259, Exchange of Property, and Interpretation Bulletin IT-491, Former Business Property, and its Special Release.

Area D - Details of equipment dispositions in the year

List in this chart the details of all equipment (including motor vehicles) you disposed of in your 2009 fiscal period. Group the equipment into the applicable classes, and put each class on a separate line. Enter on line 9926 the total business part of the proceeds of disposition of the equipment.

Area E - Details of building dispositions in the year

List in this chart the details of all buildings you disposed of in your 2009 fiscal period. Group the buildings into the applicable classes, and put each class on a separate line. Enter on line 9928 the total business part of the proceeds of disposition of the buildings.

Area F - Details of land additions and dispositions in the year

Enter on line 9924 the total of all amounts you received or will receive for disposing of land in the fiscal period.

Column 5 - UCC after additions and dispositions

You cannot claim CCA when the amount in column 5 is:

• negative (read “Recapture of CCA” below); or
• positive and you do not have any property left in that class at the end of your 2009 fiscal period (read “Terminal loss” below).

In either case, enter “0” in column 10.

Recapture of CCA

If the amount in column 5 is negative, you have a recapture of CCA. Enter your recapture on line 8230, “Other income”, in Part 3 on page 1 of your Form T2125. A recapture of CCA can happen if the proceeds from the sale of depreciable property are more than the total of:

• the UCC of the class at the start of the period; and
• the capital cost of any new additions during the period.

A recapture of CCA can also occur, for example, when you get a government grant or claim an investment tax credit.

Terminal loss

If the amount in column 5 is positive, and you no longer own any property in that class, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of a fiscal period, you have no more property in the class but still have an amount which you have not deducted as CCA. You can usually subtract this terminal loss from your gross business or professional income in the year you disposed of the property. Enter your terminal loss on line 9270, “Other expenses”, in Part 5 on page 2 of your Form T2125.

For more information on recapture of CCA and terminal loss, see Interpretation Bulletin IT-478, Capital Cost Allowance - Recapture and Terminal Loss.

Note
The rules for recapture of CCA and terminal loss do not apply to passenger vehicles in Class 10.1. However, to calculate your CCA claim, read the comments in “Column 7 - Base amount for CCA”.

Column 6 - Adjustment for current-year additions

In the year you acquire or make additions to a property, you can usually claim CCA on one-half of your net additions (the amount in column 3 minus the amount in column 4). We call this the half year rule.

Calculate your CCA claim only on the net adjusted amount. Do not reduce the cost of the additions in column 3 or the CCA rate in column 8. For example, if you acquired a property in your 2009 fiscal period for $30,000, you would base your CCA claim on $15,000 ($30,000 × 50%).

If you acquired and disposed of depreciable property of the same class in your 2009 fiscal period, the calculation in column 6 restricts your CCA claim. Calculate the CCA you can claim as follows:

• Determine which of the following amounts is less:
  • the proceeds of disposition of the property sold, minus any related costs or expenses; or
  • the capital cost.
• Subtract the above amount from the capital cost of your addition.
• Enter 50% of the result in column 6. If the result is negative, enter “0”.

In some cases, you do not make an adjustment in column 6. For example, in a non-arm's length transaction, you may buy depreciable property that the seller continuously owned from the day that is at least 364 days before the end of your 2009 fiscal period to the day the property was purchased. However, if you transfer personal property, for example, a car or a personal computer, into your business, the half-year rule applies to the particular property transferred.

Also, some properties are not subject to the half-year rule. Some examples are those in classes 13, 14, 23, 24, 27, 29, 34, and 52 as well as some of those in Class 12 such as small tools. The half-year rule does not apply when the available-for-use rules deny a CCA claim until the second tax year after the year you acquire the property.

If you need more details on the special rules that apply to Class 13, see Interpretation Bulletin IT-464, Capital Cost Allowance - Leasehold Interests, and for more details on the half-year rule, see Interpretation Bulletin IT-285, Capital Cost Allowance - General Comments.

Column 7 - Base amount for CCA

Base your CCA claim on this amount.

For a Class 10.1 vehicle you disposed of in your 2009 fiscal period, you may be able to claim 50% of the CCA that would be allowed if you still owned the vehicle at the end of your 2009 fiscal period. This is known as the half-year rule on sale.

You can use the half-year rule on sale if, at the end of your 2008 fiscal period, you owned the Class 10.1 vehicle you disposed of in 2009. If this applies to you, enter 50% of the amount from column 2 in column 7.

Column 8 - Rate (%)

In this column, enter the rate for each class of property in Area A. For detailed information on certain kinds of property, read “Classes of depreciable property”. For a more complete list of classes and rates, read the chart “CCA classes of commonly used business assets”.

Column 9 - CCA for the year

In column 9, enter the CCA you choose to deduct for 2009. The CCA you can deduct cannot be more than the amount you get when you multiply the amount in column 7 by the rate in column 8. You can deduct any amount up to the maximum.

If this is your first year of business, you may have to prorate your CCA claim. Read “You were asking…”.

Add up all the amounts in column 9. Enter the total on line 9936, “Capital cost allowance”, in Part 5 on page 2 of Form T2125. To find out how to calculate your CCA claim if you are using the property both for business and personal use, read “Personal use of property”.

Column 10 - UCC at the end of the year

This is the undepreciated capital cost (UCC) at the end of your 2009 fiscal period. This is the amount you will enter in column 2 when you calculate your CCA claim next year.

Enter “0” in column 10 if you have a terminal loss or a recapture of CCA. There will not be an amount in column 10 for a Class 10.1 passenger vehicle you dispose of in the year.

Classes of depreciable property

In this part, we discuss the more common classes of depreciable property. We also list most of the classes and their rates in the chart “CCA classes of commonly used business assets”.

Class 1 (4%)

A building may belong to class 1, 3, or 6, depending on what the building is made of and the date you acquired it. You also include in these classes the parts that make up the building, such as:

• electrical wiring;
• lighting fixtures;
• plumbing;
• sprinkler systems;
• heating equipment;
• air-conditioning equipment (other than window units);
• elevators; and
• escalators.

Note
Most land is not depreciable property. Therefore, when you acquire property, only include the cost that relates to the building in Area A and Area C. Enter on line 9923 in Area F of Form T2125 the cost of all land additions in 2009. For more details, read “Area F - Details of land additions and dispositions in the year” and “Column 3 - Cost of additions in the year”.

If you need more information, see Interpretation Bulletin IT-79, Capital Cost Allowance – Buildings or Other Structures.

Class 1 includes most buildings acquired after 1987, unless they specifically belong in another class. Class 1 also includes the cost of certain additions or alterations you made to a Class 1 building or certain buildings of another class after 1987.

The CCA rate for eligible non-residential buildings acquired by a taxpayer after March 18, 2007, used for the manufacturing or processing in Canada of goods for sale or lease, includes an additional allowance of 6% for a total rate of 10%. The CCA rate for other eligible non-residential buildings includes an additional allowance of 2% for a total rate of 6%.

To be eligible for one of the additional allowances, you must elect to place a building in a separate class. To make the election, attach a letter to your return for the tax year in which you acquired it. If you do not file an election to put it in a separate class, the rate of 4% will apply.

The additional allowance applies to buildings acquired after March 18, 2007, (including a new building, if any portion of it is acquired after March 18, 2007, where the building was under construction on March 19, 2007,) that have not been used or acquired for use before March 19, 2007.

To be eligible for the 6% additional allowance, at least 90% of a building (measured by square footage) must be used for the designated purpose at the end of the tax year. Manufacturing and processing buildings that do not meet the 90% use test will be eligible for the additional 2% allowance if at least 90% of the building is used for non-residential purposes at the end of the tax year.

Class 3 (5%)

Most buildings acquired before 1988 were included in Class 3 or Class 6.

If you acquired a building before 1990 that does not fall into Class 6, you can include it in Class 3 with a CCA rate of 5% if one of the following applies:

• you acquired the building under the terms of a written agreement entered into before June 18, 1987; or
• the building was under construction by you or for you on June 18, 1987.

Include in Class 3 the cost of any additions or alterations made after 1987 to a Class 3 building that does not exceed the lesser of the following two amounts:

• $500,000; or
• 25% of the building's capital cost (including the cost of additions or alterations to the building included in Class 3, Class 6, or Class 20 before 1988).

Any amount that exceeds the lesser amount above is included in Class 1.

Class 6 (10%)

Include in Class 6 with a CCA rate of 10% a building if it is made of frame, log, stucco on frame, galvanized iron, or corrugated metal (corrugated iron before 1988). In addition, one of the following conditions has to apply:

• you acquired the building before 1979;
• the building must be used to gain or produce income from farming or fishing; or
• the building must have no footings or other base supports below ground level.

If either of the above conditions applies, you also add the full cost of all additions and alterations to the building to Class 6.

If neither of the above conditions applies, include the building in Class 6 if one of the following conditions applies:

• you entered into a written agreement before 1979 to acquire the building, and the footings or other base supports of the building were started before 1979;
• you started construction of the building before 1979 (or it was started under the terms of a written agreement you entered into before 1979), and footings or other base supports of the building were started before 1979.

Also include in Class 6, certain greenhouses and fences.

For additions or alterations to such a building:

• Add to Class 6:
  • the first $100,000 of additions or alterations made after 1978.
• Add to Class 3:
  • the part of the cost of all additions or alterations above $100,000 made after 1978 and before 1988; and
  • the part of the cost of additions or alterations above $100,000 made after 1987, but only up to $500,000 or 25% of the cost of the building, whichever is less.
• Add to Class 1 any additions or alterations above these limits.

If you need more information, see Interpretation Bulletin IT-79, Capital Cost Allowance - Buildings or Other Structures.

Class 8 (20%)

Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, tools costing $200 or more ($500 or more under proposed changes), some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in business.

Photocopiers and electronic communications equipment, such as fax machines and electronic telephone equipment are also included in Class 8.

Note
If this equipment cost $1,000 or more, you can elect to have it included in a separate class. The CCA rate will not change but a separate CCA deduction can now be calculated for a five year period. When all the property in the class is disposed of, the UCC is fully deductible as a terminal loss. Any UCC balance remaining in the separate class at the end of the fifth year has to be transferred back to the general class in which it would otherwise belong. To make an election, attach a letter to your income tax return for the tax year in which you acquired the property.

Also include in Class 8 data network infrastructure equipment and systems software for that equipment acquired before March 23, 2004. If acquired after March 22, 2004, include it in Class 46. Read “Class 46 (30%)”.

Class 10 (30%)

Include in Class 10 with a CCA rate of 30% general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment, if you acquired them before March 23, 2004, or after March 22, 2004, and before 2005, and you made an election.

Also include in Class 10 motor vehicles, automobiles, and some passenger vehicles.

Include a passenger vehicle in Class 10 unless it meets a Class 10.1 condition.

Class 10.1 (30%)

Your passenger vehicle can belong to either Class 10 or Class 10.1. We define a passenger vehicle in “Expenses”.

To determine the class to which your passenger vehicle belongs, you have to use the cost of the vehicle before you add GST and PST, or HST.

Include your passenger vehicle in Class 10.1 if you bought it in your 2009 fiscal period and it cost more than $30,000. List each Class 10.1 vehicle separately.

We consider the capital cost of a Class 10.1 vehicle to be $30,000 plus the related GST and PST, or HST. The $30,000 amount is the capital cost limit for a passenger vehicle.

Note
Use the GST rate of 5% and the appropriate PST rate for your province or territory. If your province is a participating province, use HST. For more information on GST and HST, see Guide RC4022, General Information for GST/HST Registrants.

Class 12 (100%)

Class 12 includes china, cutlery, linen, uniforms, dies, jigs, moulds, cutting or shaping parts of a machine, tools, computer software (except systems software). Also included are video cassettes, video laser discs, or digital video disks bought after December 12, 1995, that you rent and do not expect to rent to any person for more than 7 days in a 30 day period.

Under proposed changes, the cost limit for access to the Class 12 (100%) treatment will increase to $500 from $200 for:

• tools acquired on or after May 2, 2006; and
• medical or dental instruments and kitchen utensils acquired on or after May 2, 2006.

However, if the tools, medical or dental instruments and kitchen utensils cost $200 or more ($500 or more under proposed changes), include the cost in Class 8.

Tools eligible under this class specifically exclude electronic communication devices and electronic data-processing equipment.

Class 45 (45%)

Include general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment, in Class 45 with a CCA rate of 45% if you acquired them after March 22, 2004, and before March 19, 2007.

Note
If you acquired the equipment or software before 2005 and made the separate Class 8 election, as discussed in the Class 8 note, the property does not qualify for the 45% rate.

Class 46 (30%)

Include in Class 46 with a CCA rate of 30% data network infrastructure equipment and systems software for that equipment if acquired after March 22, 2004. If acquired before March 23, 2004, include it in Class 8. Read “Class 8 (20%)”.

Class 50 (55%)

Include in Class 50 with a CCA rate of 55% general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment if acquired after March 18, 2007, and not included in Class 29 or Class 52.

Special situations

Personal use of property

If you buy property for both business and personal use, you can show the business part of the property in Area B or Area C in two ways:

• If your business use stays the same from year to year, enter in Area B or Area C the total cost of the property in column 3, the personal part in column 4, and the business portion in column 5. Enter in column 3 of Area A the amount from column 5 of Area B or Area C to calculate the CCA you can claim.
• If your business use changes from year to year, enter in Area B or Area C the total cost of the property in column 3 and column 5, and enter “0” in column 4. Enter in column 3 of Area A the amount from column 5 of Area B or Area C and calculate the CCA amount (business and personal) in column 9. The amount in column 10 (UCC at the end of the year) is equal to the amount in column 5 minus the amount in column 9. When you claim CCA on Form T2125, you have to calculate the allowable part of the column 9 amount based on your business use. Read an example.

The CCA calculated for the business use of a work space in your home in Area A of Form T2125 must be reported on the chart, “Calculation of business-use-of-home expenses”, on page 3 of the form. This CCA must be subtracted from the total amount of the CCA for the year calculated in Area A and must not be included on line 9936, “Capital cost allowance”, in Part 5 on page 2 of Form T2125.

Note
The capital cost limits on a Class 10.1 vehicle (a passenger vehicle) still apply when you split the capital cost between business and personal use. For more details, “Class 10.1 (30%)”.

Changing from personal to business use

If you bought a property for personal use and started using it in your business in your 2009 fiscal period, there is a change in use. You need to determine the capital cost for business purposes.

If the fair market value (FMV) of a depreciable property is less than its original cost when you change its use, the amount you put in column 3 of Area B or Area C is the FMV of the property (excluding the land value if the property is land and a building). If the FMV is more than the original cost of the property (excluding the land value if the property is land and a building) when you change its use, use the following chart to determine the amount to enter in column 3 of Area B or Area C.

When you start to use your property for business use, you are considered to have disposed of it. If the FMV of the property is greater than its cost, you may have a capital gain. See Guide T4037, Capital Gains, for an explanation of capital gains.

Capital Cost Calculation

Actual cost of the property				$		1
FMV of the property	$		2
Amount from line 1	$		3
Line 2 minus line 3 (if negative, enter “0”)	$		4
Enter any capital gains deduction claimed for the amount on line 4* $ ______ × 2 =	$		5
Line 4 minus line 5 (if negative, enter “0”)	$		× 1/2 =	$		6
Capital cost: line 1 plus line 6				$		7
* Enter the amount that relates to the depreciable property only.

Note
We consider that you acquire the land for an amount equal to its FMV when you change its use. Include this amount on line 9923, “Total cost of all land additions in the year”, in Area F.

Grants, subsidies, or other incentives or inducements

You may get a grant or subsidy from a government or a government agency to buy depreciable property. When this happens, subtract the amount of the grant from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or Area C.

You may have paid GST/HST on some of the depreciable property you acquired for your business. If so, you may have also received an input tax credit from us. The input tax credit is government assistance. Therefore, subtract it from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or Area C, whichever applies. If you receive an input tax credit for a passenger vehicle you use in your business, use one of these methods:

• For a passenger vehicle you used 90% or more for your business, subtract the amount of the credit from the vehicle's cost before you enter its capital cost in column 3 of Area C.
• For a passenger vehicle you used less than 90% for your business, do not make an adjustment in 2009. In 2010, subtract the amount of the credit from your beginning UCC.

You may get an incentive from a non-government agency to buy depreciable property. If this happens, you can either include the amount in income or subtract the amount from the capital cost of the property.

For more details about government assistance, see Interpretation Bulletin IT-273, Government Assistance - General Comments.

Non-arm's length transactions

When you acquire property in a non-arm's length transaction, there are special rules to follow to determine the property's cost. These special rules do not apply if you get the property because of someone's death.

You can acquire depreciable property in a non-arm's length transaction from an individual resident in Canada, a partnership with at least one partner who is an individual resident in Canada, or a partnership with at least one partner that is another partnership. If you pay more for the property than the seller paid for the same property, calculate the cost as follows:

Capital Cost Calculation

The seller's cost or capital cost				$		1
The seller's proceeds of disposition	$		2
Amount from line 1	$		3
Line 2 minus line 3 (if negative, enter “0”)	$		4
Enter any capital gains deduction claimed for the amount on line 4 $ ______ × 2	$		5
Line 4 minus line 5 (if negative, enter “0”)	$		× 1/2 =	$		6
Capital cost: line 1 plus line 6				$		7
Enter this amount in column 3 of either Area B or Area C, whichever applies. Do not include the cost of the related land, which you have to include on line 9923, “Total cost of all land additions in the year”, in Area F.

You can also buy depreciable property in a non-arm's length transaction from a corporation or from an individual who is not resident in Canada, or a partnership with no partners who are individuals resident in Canada or with no partners that are other partnerships. If you pay more for a property than the seller paid for it, calculate the capital cost as follows:

Capital Cost Calculation

The seller's cost or capital cost				$		1
The seller's proceeds of disposition	$		2
Amount from line 1	$		3
Line 2 minus line 3 (if negative, enter “0”)	$		× 1/2 =	$		4
Capital cost line 1 plus line 4				$		5
Enter this amount in column 3 of either Area B or Area C, whichever applies. Do not include the cost of the related land, which you have to include on line  9923, “Total cost of all land additions in the year”, in Area F.

If you buy depreciable property in a non-arm's length transaction and pay less for it than the seller paid, your capital cost is the same amount as the seller paid. We consider you to have deducted as CCA the difference between what you paid and what the seller paid.

There is a limit on the cost of a passenger vehicle you buy in a non-arm's length transaction. The cost is the least of the following three amounts:

• the FMV when you buy it;
• $30,000 plus the GST and PST, or HST you would pay on $30,000, if you bought it in your 2009 fiscal period; or
• the seller's cost amount of the vehicle when you buy it.

The cost amount can vary, depending on what the seller used the vehicle for before you bought it. If the seller used the vehicle to earn income, the cost amount will be the UCC of the vehicle when you buy it. If the seller did not use the vehicle to earn income, the cost amount will usually be the original cost of the vehicle.

For more details on non-arm's length transactions, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Capital gains

If you sell a property for more than it cost, you may have a capital gain. List the dispositions of all your properties on Schedule 3, Capital Gains (or Losses) in 2009.

You will find a copy of this schedule in your General Income Tax and Benefit Guide package. For details on how to calculate your taxable capital gain, see Guide T4037, Capital Gains.

You may be a partner in a partnership that gives you a T5013 slip, Statement of Partnership Income, or a T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses. If the partnership has a capital gain, it will allocate part of that gain to you. The gain will show on the partnership's financial statements or on your T5013 or T5013A slip.

Note
You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss. For an explanation of terminal losses, read “Column 5 - UCC after additions and dispositions”.

Special rules for disposing of a building in the year

If you disposed of a building in the year, special rules may apply that make the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both of the following conditions:

• you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you; and
• you, or a person with whom you do not deal at arm's length (read the definition of non-arm's length), owned the land that the building is on, or the land next to it, which was necessary for the building's use.

To calculate the cost amount:

• If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building.
• If more than one property is in the same class, you have to calculate the cost amount of each building as follows:

Note
If any property in the class of the building that was acquired at non-arm's length was previously used for a purpose other than gaining or producing income, or if the part of a property used for gaining or producing income has changed, the capital cost of such property has to be recalculated to determine the cost amount of the property.

If you disposed of a building under these conditions, and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A below.

If you, or a person with whom you do not deal at arm's length, did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition as shown in Calculation B below.

Calculation A
Land and building sold in the same year

Fair market value of the building at the time you disposed of it				$		1
Fair market value of the land just before you disposed of it				$		2
line 1 plus line 2				$		3
Seller's adjusted cost base of the land	$		4
Total capital gains (without reserves) from any disposition of the land (such as a change in use) in the three-year period before you disposed of the building (by you, or a person not dealing at arm's length with you, to you or to another person not dealing at arm's length with you)	$		5
Line 4 minus line 5 (if negative, enter “0”)	$		6
Line 2 or line 6, whichever amount is less				$		7
Line 3 minus line 7 (if negative, enter “0”).				$		8
Cost amount of the building just before you disposed of it	$		9
Capital cost of the building just before you disposed of it	$		10
Line 9 or line 10, whichever amount is less	$		11
Line 1 or line 11, whichever amount is more				$		12
Deemed proceeds of disposition for the building
Line 8 or line 12, whichever amount is less (enter this amount in column 3 of Area E and in column 4 of Area A on Form T2125).				$		13
Deemed proceeds of disposition for the land
Proceeds of disposition of the land and building				$		14
Amount from line 13				$		15
Line 14 minus line 15 (enter this amount on line 9924 of Area F on your form).				$		16
If you have a terminal loss on the building, include it on line 9270, “Other expenses”, in Part 5 on your Form T2125.

Calculation B
Land and building sold in different years

Cost amount of the building just before you disposed of it	$		1
Fair market value of the building just before you disposed of it	$		2
Line 1 or line 2, whichever amount is more				$		3
Actual proceeds of disposition, if any				$		4
Line 3 minus line 4				$		5
Line 5 ______$ × 1/2 =				$		6
Amount from line 4				$		7
Deemed proceeds of disposition for the building: Line 6 plus line 7
Enter this amount in column 3 of Area E and in column 4 of Area A.				$		8
If you have a terminal loss on the building, include it on line 9270, “Other expenses”, in Part 5 on your Form T2125.

Ordinarily, you can deduct the full amount of a terminal loss but only part of a capital loss. Calculation B ensures that you use the same factor to calculate a terminal loss on a building as you use to calculate a capital loss on land. As a result of this calculation, you add part of the amount on line 5 to the actual proceeds of disposition from the building. If you have a terminal loss, read “Terminal loss”.

Replacement property

In a few cases, you can postpone or defer adding a capital gain or recapture of CCA to income. You might sell a business property and replace it with a similar one, or your property might be stolen, destroyed, or expropriated and you replace it with a similar one. You can defer tax on the sale proceeds, which you reinvest in replacement property within a reasonable period of time. To defer reporting the capital gain or recapture of CCA, you must acquire and you, or a person related to you, must use the new property for the same or similar purpose as the one that you are replacing.

If you need more details, see Interpretation Bulletin IT-259, Exchange of Property, and Interpretation Bulletin IT-491, Former Business Property, and its Special Release.

You can also defer a capital gain or recapture of CCA when you transfer property to a corporation or a partnership. For more information, see:

• Information Circular IC76-19, Transfer of Property to a Corporation Under Section 85;
• Interpretation Bulletin IT-291, Transfer of Property to a Corporation Under Subsection 85(1);
• Interpretation Bulletin IT-378, Winding-up of a Partnership; and
• Interpretation Bulletin IT-413, Election by Members of a Partnership Under Subsection 97(2).

The following example summarizes this chapter:

Summary of Chapters 2 to 4 - Completed Form T2125

In this section, we summarize our discussion about income, expenses, and capital cost allowance, by showing you what the completed Form T2125 would look like for Cathy's business and recapping the information we have so far.
Total sales (does not include GST and PST, or HST)	$	189,000
Returned items	$	1,000
Inventory at the start of her 2009 fiscal period	$	36,500
Inventory at the end of her 2009 fiscal period	$	30,000
Purchases (including freight and other expenses)	$	88,000
Meals and entertainment expenses (allowable amount)	$	50
Motor vehicle expenses	$	3,125
Convention expenses	$	500
Capital cost allowance	$	3,125
Cathy also entered these expenses in her expense journals:
Accounting fees	$	750
Advertising	$	2,800
Business tax	$	550
Business insurance	$	1,600
Interest on business loan	$	5,300
Maintenance	$	800
Office supplies	$	2,700
Rent of store	$	10,800
Salaries (full and part-time employees)	$	19,000
Travelling (except car)	$	350
Utilities on store	$	3,500

Therefore, the calculation of Cathy's net business income on her Form T2125 would look like this:

Click here to see Cathy's net business income on Form T2125

CCA classes of commonly used business assets

Class	Rate (%)	Description
1	4	Most buildings you bought after 1987 and the cost of certain additions or alterations made after 1987. The rate for eligible non residential buildings acquired after March 18, 2007, used for the manufacturing and processing in Canada of goods for sale or lease includes an additional allowance of 6% (total 10%). For all other eligible non residential buildings in this class, the rate includes an additional allowance of 2% (total 6%). To be eligible for the additional allowances, elections have to be filed. For more information, read “Class 1 (4%)”.
3	5	Most buildings acquired before 1988 (or 1990, subject to certain conditions). Also include the cost of additions or alterations made after 1987. For more information, read “Class 3 (5%)”.
6	10	Frame, log, stucco on frame, galvanized iron, or corrugated metal buildings that meet certain conditions. Class 6 also includes certain fences and greenhouses. For more information, read “Class 6 (10%)”.
8	20	Property that you use in your business that is not included in another class. Also included is data network infrastructure equipment and systems software for that equipment acquired before March 23, 2004. See also Class 46. For more information, read “Class 8 (20%)”.
10	30	General purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment acquired before March 23, 2004, or after March 22, 2004, and before 2005 if you made an election. Motor vehicles, automobiles, and some passenger vehicles. Also see Class 10.1. For more information, read “Class 10 (30%)”.
10.1	30	A passenger vehicle not included in Class 10. For more information, read “Class 10.1 (30%)”.
12	100	Under proposed changes, the cost limit for access to Class 12 (100%) treatment will increase to $500 from $200 for tools acquired on or after May 2, 2006, and medical and dental instruments and kitchen utensils acquired on or after May 2, 2006. For more information on other properties, read “Class 12 (100%)”.
13		Leasehold interest – You can claim CCAon a leasehold interest, but the maximum rate depends on the type of leasehold interest and the terms of the lease.
14		Patents, franchises, concessions, or licences for a limited period. Your CCA is whichever of the following amounts is less: the total of the capital cost of each property spread out over the life of the property; or the undepreciated capital cost to the taxpayer as of the end of the tax year of property of that class.
16	40	Taxis, vehicles you use in a daily car rental business, coin operated video games or pinball machines acquired after February 15, 1984, and freight trucks acquired after December 6, 1991, that are rated above 11,788 kg.
17	8	Roads, parking lots, sidewalks, airplane runways, storage areas, or similar surface construction.
45	45	General purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment acquired after March 22, 2004, and before March 19, 2007. For more information, read “Class 45 (45%)”. Also see Class 10, Class 50, and Class 52.
46	30	Data network infrastructure equipment and systems software for that equipment acquired after March 22, 2004, (if acquired before March 23, 2004 include in Class 8).
50	55	General purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data-processing equipment acquired after March 18, 2007, and not included in Class 29 or Class 52.
52	100	General purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data-processing equipment acquired after January 27, 2009, and before February 2011. For more information, read “Class 52 (100%)”. Also see Class 50.

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Chapter 5 - Eligible Capital Expenditures

What is an eligible capital expenditure?

You may buy property that does not physically exist but gives you a lasting economic benefit. Some examples are goodwill, franchises, concessions, or licences for an unlimited period. We call this kind of property eligible capital property. The price you pay to buy this type of property is an eligible capital expenditure.

Franchises, concessions, or licences with a limited period are considered depreciable properties, not eligible capital properties. For details about depreciable properties, read Chapter 4.

What is an annual allowance?

You cannot fully deduct an eligible capital expenditure because the expenditure is considered to be capital in nature and provides a lasting economic benefit. However, you can deduct part of its cost each year. We call the amount you can deduct your annual allowance.

What is a cumulative eligible capital (CEC) account?

This is the bookkeeping record you establish to determine your annual allowance. You also use your CEC account to keep track of the property you buy and sell. We call the property in your CEC account your eligible capital property. You base your annual allowance on the balance in your account at the end of your fiscal period. Keep a separate account for each business, but include all eligible capital property for the one business in the same CEC account.

How to calculate your annual allowance

CEC account

Complete the following chart to calculate your annual allowance and the balance in your CEC account at the end of your 2009 fiscal period.

Calculating your annual allowance and CEC account balance
at the end of your 2009 fiscal period

Balance in the account at the start of your 2009 fiscal period				$		1
Eligible capital expenditures you made or incurred in your 2009 fiscal period ______× 75%				$		2
line 1 plus line 2				$		3
All the amounts you received or are entitled to receive from the sale of eligible capital property in your 2009 fiscal period	$		4
All the amounts that became receivable in your 2009 fiscal period from the sale of eligible capital properties before June 18, 1987	$		5
Line 4 plus line 5	$		6
Line 6 × 75%				$		7
CEC account balance Line 3 minus line 7				$		8
Annual allowance 7% × line 8				$		9
CEC account balance at the end of your 2009 fiscal period Line 8 minus line 9				$		10

Note
An eligible capital expenditure is reduced by the amount of any assistance received or receivable from a government for the expenditure. Also, an amount forgiven (or entitled to be forgiven) on government debt reduces your CEC account. Special conditions may apply to non-arm's length transactions. For additional information, see Interpretation Bulletin IT-123, Transactions Involving Eligible Capital Property.

You can deduct an annual allowance if there is a positive balance (line 8) in your CEC account at the end of your 2009 fiscal period. You do not have to claim the full amount of the maximum annual allowance for a given year. You can deduct any amount you want, up to the maximum allowable of 7%. If your fiscal period is less than 365 days, you have to prorate your claim. Base your claim on the number of days in your fiscal period compared to 365 days.

If there is a negative balance in your CEC account, read “Sole proprietor - Sale of eligible capital property in the 2009 fiscal period” and “Partnership - Sale of eligible capital property in the 2009 fiscal period”. The following is an example of how to calculate the maximum annual allowance and account balance.

Sole proprietor - Sale of eligible capital property in the 2009 fiscal period

When you sell eligible capital property, you have to subtract part of the proceeds of disposition from your CEC account.

You have to do this calculation if you sold eligible capital property:

• in your 2009 fiscal period; or
• before June 18, 1987, and the proceeds of disposition become due to you in your 2009 fiscal period.

For 2009, the amount you have to subtract is 75% of the total of these amounts:

• the proceeds of disposition of all the eligible capital property you sell in your 2009 fiscal period; and
• the amount of any proceeds that become due to you in your 2009 fiscal period from eligible capital property you sold before June 18, 1987.

There may be a negative amount (excess) in your CEC account after you subtract the required amount. In this case, you will have to include part of the negative amount in your business income.

Multiply by 2/3 the part of the negative amount in your CEC account that exceeds the annual allowances deducted. To that result, add whichever is less, the excess or annual allowances deducted. This is the amount to include in your business income. The following example shows how to calculate the amount to include in your business income.

Partnership - Sale of eligible capital property in the 2009 fiscal period

When the partnership sells eligible capital property, it has to subtract part of the proceeds of disposition from its CEC account.

The partnership has to do this calculation if it sold eligible capital property:

• in its 2009 fiscal period; or
• before June 18, 1987, and the proceeds of disposition become due in its 2009 fiscal period.

For 2009, the amount the partnership has to subtract is 75% of the total of these amounts:

• the proceeds of disposition of all the eligible capital property the partnership sells in its 2009 fiscal period. The total proceeds of disposition have to be included even if the partnership will not receive the entire amount in 2009; and
• the amount of any proceeds that become due in the partnership's 2009 fiscal period from eligible capital property it sold before June 18, 1987.

The partnership's CEC account may have a negative amount (excess) after it subtracts the required amount. In this case, the partnership will have to include part of the negative amount in its business income.

Multiply by 2/3 the part of the negative amount in the partnership CEC account that exceeds the annual allowances deducted. To that result, add the lesser of the excess and annual allowances deducted. This is the amount to include in the partnership business income. The next example shows how to calculate the amount to include in your business income.

The partnership has to include the business income that results from the sale of the eligible capital property on line 8230, “Other income”, in Part 3 on page 1 of Form T2125.

If you, as a partner in the partnership, had made the capital gains election by filing Form T664, Election to Report a Capital Gain on Property Owned at the end of February 22, 1994, with your 1994 income tax return for your partnership interest, you would have reported the capital gain accrued to February 22, 1994. In this case, the adjusted cost base of your partnership interest has not changed as a result of the election. Rather, you have created a special account called your exempt capital gains balance (ECGB). Your ECGB expired after 2004. If you did not use all of your ECGB by the end of 2004, you can add the unused balance to the adjusted cost base of your shares of, or interest in, the flow-through entity.

Election

Under certain conditions, you can elect to treat the disposition of an eligible capital property (other than goodwill) as a regular capital gain. For example, properties such as a franchise, concession, or licence that has an unlimited life may qualify for this election. By electing, you deem to remove the property from your CEC account for proceeds equal to its original cost.

You can then declare a capital gain equal to your actual proceeds of disposition minus the cost of acquisition. Report the details on the “Real estate, depreciable property and other properties” line of Schedule 3, Capital Gains (or Losses) in 2009. This election will benefit you if you have unused capital losses to apply against the capital gain.

The election is available if you meet the following conditions:

• you disposed of an eligible capital property other than goodwill;
• the cost of the eligible capital property can be determined;
• the proceeds of disposition exceed the cost; and
• you do not have an exempt gains balance.

File your election by attaching a note to your income tax return.

Replacement property

If you sell an eligible capital property and replace it with another one for the same or similar use, you can choose to postpone all or part of any gain on the sale. This happens if you acquire a replacement eligible capital property within a certain period of time. To do this, you have to replace the property no later than one year after the end of the tax year in which you sell the original property. For more details, see Interpretation Bulletin IT-259, Exchange of Property.

For more information about eligible capital expenditures, see Interpretation Bulletin IT-123M, Transactions Involving Eligible Capital Property, and Interpretation Bulletin IT-143, Meaning of Eligible Capital Expenditure.

Appendix - Industry Codes

Professions

Architect (except landscape)	541310
Architect (landscape)	541320
Bookkeeping services	541215
Chartered or certified accountant	541212
Dentist	621210
Engineer	541330
Lawyer	541110
Notary (Quebec only)	541120
Physician (general practice), surgeon, or specialist	621110
Psychologist	621330
Veterinarian	541940
Other health practitioner	621390
Other legal services (including notaries outside Quebec)	541190
Other professional, scientific, or technical services	541000
Other social service practitioner	624000
Online financial and investment advice	523999
Other online advice and counselling	541999

Services

Agricultural or animal services

Animal specialty or livestock services	115210
Crop services	115110
Other agricultural services	115000

Transportation or storage

Air transport	481000
Bus transport (school or employee)	485410
Interurban and rural transit	485210
Storage or warehousing	493100
Taxi	485310
Truck transport	484000
Urban transit	485110
Water transport	483000
Other transportation service	480000

Communications or utilities

Courier services	492110
Flyer delivery	541870
Postal services	491110
Public utilities	221000
Telecommunications	517000

Finance, insurance, or real estate

Financial services (excluding banks and finance companies)	523000
Insurance agent or broker (independent)	524210
Insurance company	524100
Lessors of non-residential buildings (except mini-warehouses)	531120
Lessors of other real estate property	531190
Lessors of residential buildings and dwellings	531111
Lessors of self-storage mini-warehouses	531130
Lessors of social housing projects	531112
Real estate agents	531211
Real estate brokers	531212
Offices of real estate appraisers	531320
Real estate property managers	531310
Other activities related to real estate	531390

Business services

Advertising	541800
Computer programmer or analyst	541510
Consultation - environment	541620
Consultation - management	541610
Consultation - science and technology	541690
Data processing, storing, and related services	518210
Employment agency	561300
Exterminators, janitors, and chimney cleaners	561700
Internet service and search engine suppliers	518110
Publishing	511000
Other business services	561000
Online business services	561999

Health or social services

Babysitting or child-care (your own home)	624410
Educational services	610000
Health or social services (other than child care)	620000
Tutors	611690

Entertainment or recreation

Agents and representatives - artists, athletes, and other public figures	711410
Entertainment or stage company	711100
Film or video production services	512110
Independent athletes and trainers (coach)	711218
Independent artists, authors, and interpreters (performers)	711510
Movie or motion picture film presenter	512130
Sports promoter	711319
Sports teams and clubs	711211
Ski facilities, golf courses, marinas, bowling centres, and fitness centres	713900
Other amusements or recreation	710000
Online adult entertainment including gambling and pornography	519130
Online psychic, escorts, dating, party planning, personal shopping	812990

Accommodation, food, or beverage services

Bed and breakfast, cabins, and tourist rooms	721190
Campgrounds, hunting, fishing, and vacation camps	721210
Canteens, mobile food services	722330
Catering	722320
Full-service restaurant	722110
Hotel, motor-hotel, motel, or resort	721110
Limited service restaurant, take-out, and drive-in	722210
Rooming and boarding houses	721310
Tavern, bar, or nightclub	722410

Repairs and maintenance

Automotive exhaust system repair	811112
Automotive glass replacement shops	811122
Auto painting or body repairs	811121
Car washes	811192
Furniture refinishing or repairing	811420
General automotive repair	811111
Home and garden equipment and appliances repair and maintenance	811410
Shoe repair shops	811430
TV, radio, stereo, computer, or camera repairs	811210
Other repairs	811000

Personal or household services

Barber or beauty shop	812110
Carpet cleaning service	561740
Funeral services	812200
Home cleaning services	561722
Homemaker services	624120
Laundry or dry cleaning	812300
Other personal or household services	810000

Other services

Business, religious, or social organization	813000
Janitorial services (except window cleaning)	561722
Machine or equipment rental leasing	532000
Miscellaneous building or dwelling services	561700
Photography	541920
Travel services	561510
Vehicle rental or leasing	532110

Sales

Household goods stores

Appliances, TV, radio, or stereo repairs	443110
Computer and software sales	443120
Household accessories	442200
Household furniture and appliances	442110

Food or beverage stores

Baked goods, candy, or nuts	445290
Beer, wine, or liquor	445310
Convenience stores	445120
Groceries (except convenience stores)	445110
Meat, fish, fruits, or vegetables	445200
Supermarket	445110
Other food stores	445000

Automotive

Auto parts or accessories store	441310
Automobile sales	441100
Recreational vehicle sales	441210
Service station (with convenience store)	447110
Other service station	447190

Other retail stores

Bookstores and news dealers	451210
Cameras and photographic supplies	443130
Florists	453110
General merchandise	452000
Gifts, novelties, and souvenirs	453220
Hardware	444130
Jewellery or watch sales or repairs	448310
Lawn and garden supplies	444220
Musical instruments	451140
Office supplies and stationery stores	453210
Paint or wallpaper	444120
Pharmacies or drugstores	446110
Records, CDs, or pre-recorded tapes	451220
Sewing, needlework, and piece goods	451130
Shoes or clothing	448000
Sporting goods or bicycles	451110
Toys, hobbies, and games	451120
Other merchandise	440000

Direct sales

Cosmetics	454390
Food or beverages	454390
Fuel dealers	454310
Household goods	454390
Newspaper delivery	454390
Vending machine operators	454210
Other direct sales	454390
Online retailing	454111
Mail order houses	454113

Wholesales

Wholesale agents and brokers (not online business to business)	419120
Online wholesale agents and brokers - Business to business	419110
Apparel and dry goods	414100
Beverages	413200
Building materials and supplies	416000
Drugs	414510
Farm products	411100
Food	413100
Machinery, equipment, and related supplies	417000
Personal and household goods	414000
Petroleum products	412110
Tobacco	413310
Vehicles, parts, and accessories	415000
Other products	410000
Online wholesaling	418990

Construction

Acoustical work	238310
Asphalt paving (driveways and parking lots)	238990
Buildings (including development)	236000
Electrical installation	238210
Engineering construction	237000
Excavating or grading	238910
Fence installation	238990
Finish carpentry	238350
Glass or glazing	238150
Hardwood flooring installation	238330
Heating, air conditioning, or other duct/sheet metal work	238220
Home renovations	236110
Insulation	238310
Masonry	238140
Mechanical specialty work	238220
Painting or decorating	238320
Plastering or drywalling	238310
Plumbing	238220
Resilient flooring or carpet installation	238330
Shingling	238160
Siding installation	238170
Site work	238910
Structural or related work	238100
Terrazzo or tile work	238340
Other construction services	230000
Other exterior close-in work	238190
Other interior or finishing work	238390
Other trade work	238990

Manufacturing

Beverages	312100
Chemicals or chemical products	325000
Clothing	315000
Computer or electronic products	334000
Electrical equipment, appliances, and components	335000
Fabricated metal products	332000
Food	311000
Furniture or fixtures	337000
Leather or leather products	316110
Non-metallic mineral products	327000
Paper products	322000
Plastic	326100
Primary metal	331000
Printing	323100
Refined petroleum and coal products	324100
Rubber	326200
Textile products	314000
Textile yarn or fabric	313000
Tobacco	312220
Transportation equipment	336000
Wood products	321000
Other manufacturing	300000

Natural resource industries

Forestry support services	115310
Hunting and trapping	114210
Logging	113310
Mining (except oil and gas)	212000
Oil and gas extraction	211110
Quarry or sand pit	212300
Support activities for mining or oil and gas extraction	213110

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Index

A | B | C | D | E | F | G | I | L | M | N | O | P | R | S | T | U | V | W

A

• Accounting fees
• Accrual method
• Advertising expenses
• Allowance on eligible capital property
• Automobile, defined
• Available for use, defined

B

• Bad debts
• Business, defined
• Business income reporting
• Business liabilities
• Business records
• Business tax, fees, licences, dues
• Business-use-of-home expenses

C

• Capital contributions in 2009
• Capital cost allowance (CCA)
  • Adjustment for current-year additions
  • Base amount
  • Buildings
  • Class number (Column 1)
  • Classes of depreciable property
  • Cost of additions (Column 3)
  • Electronic office equipment (Class 8)
  • Grants and subsidies
  • Half year rule
  • Passenger vehicle, defined
  • Passenger vehicles (Class 10 or 10.1)
  • Personal use of property
  • Proceeds of dispositions
  • Rate (%)
  • Recapture of CCA
  • Replacement property
  • Terminal loss
  • UCC at the end of the year (Column 10)
  • UCC at the start of the year (Column 2)
  • Undepreciated capital cost (UCC) after additions and dispositions
• Capital cost allowance, deduction (line 9936)
• Capital cost, defined
• Capital gains
• Cash method
• Changing from personal to business use
• Commission income
• Computers and other equipment leasing costs
• Convention expenses
• Cost of goods sold
• Cumulative eligible capital (CEC) account
  • Annual allowance calculation

D

• Dates to remember
• Delivery, freight, and express
• Depreciable property, defined
• Details of equity
• Direct wage costs (cost of goods sold)
• Drawings in 2009

E

• Eligible capital expenditure
• Eligible capital property sale

F

• Fair market value (FMV), defined
• Fiscal period, defined
• Forms and publications
• Fuel costs

G

• Gifts of inventory by an artist
• GST/HST rebate for partners
• Gross income

I

• Identification area of Form T2125
• Income from a business
• Income from a profession
• Income, other (line 8230)
• Industry codes
• Instalment payments
• Insurance expenses
• Interest expenses
• Inventories

L

• Land
• Leasing costs
• Legal fees
• Liabilities

M

• Maintenance and repairs
• Management and administration fees
• Meals and entertainment
• Membership fees
• Motor vehicle, defined
• Motor vehicle expenses
  • Business use
  • Joint ownership

N

• Net income (loss)
• Net income (loss) before adjustments
• Non-arm's length transaction, defined
  • Acquiring property

O

• Office expenses
• Other amounts deductible from your share of net partnership income (loss)
• Other expenses (line 9270)

P

• Partnerships
  • Defined
• Partnership information return
• Passenger vehicle
  • Defined
  • Interest expense
• Prepaid expenses
• Private health services plan (PHSP)
• Proceeds of disposition, defined
• Professional income
• Professional fees incurred (line 8860)
• Property taxes
• Proprietorships, requirements
• Publications

R

• Records
• Rent
• Reserves

S

• Salaries, wages, and benefits paid
• Small tools (Class 8, Class 12)
• Subcontracts
• Subsidies
• Supplies

T

• Telephone expenses
• Travel expenses

U

• Undepreciated capital cost (UCC), defined
• Utilities

V

• Vehicles, more than one

W

• Work-in-progress (WIP)

For more information

Forms and publications

You can get more copies of Form T2125, Statement of Business or Professional Activities, or any of the following forms or publications, referred to in this guide, by going to Forms and publications page or by calling us at 1-800-959-2221.

Guides and pamphlets

General Income Tax and Benefit Guide 2009

P110, Paying Your Income Tax by Instalments

P113, Gifts and Income Tax

RC4015, Reconciliation of Business Income for Tax Purposes

RC4022, General Information for GST/HST Registrants

RC4058, Quick Method of Accounting for GST/HST

RC4091, GST/HST Rebate for Partners

RC4110, Employee or Self-Employed?

RC4409, Keeping Records

T4011, Preparing Returns for Deceased Persons

T4037, Capital Gains

T4068, Guide for the T5013 Partnership Information Return

Forms

GST370, Employee and Partner GST/HST Rebate Application

T1A, Request for Loss Carryback

T137, Request for Destruction of Records

T1139, Reconciliation of 2009 Business Income for Tax Purposes

T2017, Summary of Reserves on Dispositions of Capital Property

T2038 (IND), Investment Tax Credit (Individuals)

T2145, Election in Respect of the Leasing of Property

T2146, Election in Respect of Assigned Leases or Subleased Property

T2210, Verification of Policy Loan Interest by the Insurer

T5003, Statement of Tax Shelter Information

T5004, Claim for Tax Shelter Loss or Deduction

T5013, Statement of Partnership Income

T5013A, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses

Information circulars

IC76-19, Transfer of Property to a Corporation under Section 85

IC78-10, Books and Records Retention/Destruction

Interpretation bulletins

IT-79, Capital Cost Allowance - Buildings or Other Structures

IT-90, What is a Partnership?

IT-99, Legal and Accounting Fees

IT-123, Transactions Involving Eligible Capital Property

IT-128, Capital Cost Allowance - Depreciable Property

IT-131, Convention Expenses

IT-143, Meaning of Eligible Capital Expenditure

IT-154, Special Reserves

IT-200, Surface Rentals and Farming Operations

IT-206, Separate Businesses

IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property

IT-232, Losses - Their Deductibility in the Loss Year or in Other Years

IT-259, Exchange of Property

IT-273, Government Assistance - General Comments

IT-285, Capital Cost Allowance - General Comments

IT-291, Transfer of Property to a Corporation under Subsection 85(1)

IT-339, Meaning of “Private Health Services Plan”

IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate, and Expenses of Borrowing Money

IT-364, Commencement of Business Operations

IT-373, Woodlots

IT-378, Winding-up of a Partnership

IT-413, Election by Members of a Partnership under Subsection 97(2)

IT-417, Prepaid Expenses and Deferred Charges

IT-419, Meaning of Arm's Length

IT-442, Bad Debts and Reserves for Doubtful Debts

IT-457, Election by Professionals to Exclude Work in Progress from Income

IT-459, Adventure or Concern in the Nature of Trade

IT-464, Capital Cost Allowance - Leasehold Interests

IT-473, Inventory Valuation

IT-478, Capital Cost Allowance - Recapture and Terminal Loss

IT-481, Timber Resource Property and Timber Limits

IT-490, Barter Transactions

IT-491, Former Business Property

IT-492, Capital Cost Allowance - Industrial Mineral Mines

IT-501, Capital Cost Allowance - Logging Assets

IT-504, Visual Artists and Writers

IT-514, Work Space in Home Expenses

IT-518, Food, Beverages, and Entertainment Expenses

IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals

IT-533, Interest Deductibility and Related Issues

Electronic services

Electronic services help businesses by streamlining communications with the CRA and simplifying the preparation and submission of tax information.

My Account

My Account is a secure, convenient, and time-saving way to access and manage your tax and benefit information online, seven days a week! If you are not registered with My Account but need information right away, use Quick Access to get fast, easy, and secure access to some of your information now. For more information, go to My Account page or see Pamphlet RC4059, My Account for individuals.

My Business Account

My Business Account provides business owners (including partners, directors, and officers) secure, online access to their GST/HST, payroll, corporation income tax, and other account information online. You can file returns, view account balances and transactions, and view the status of certain returns. You can also view and update your operating name, view your direct deposit banking information, and authorize your employees and representatives to have online access to your account information. To learn more about the growing list of services available in My Business Account, go to My Business Account page.

Represent a client

Authorized representatives can view account information and transact online for their business clients through the Represent a client service. Business owners can authorize their representatives through My Business Account, or with Form RC59, Business Consent Form. For more information, go to Represent a client page.

Contact us

This guide explains the most common tax situations. If you need more information about business or professional activities, visit www.cra.gc.ca or call 1-800-959-5525.

Teletypewriter users

If you use a teletypewriter (TTY), you can call our bilingual enquiry service at 1-800-665-0354.

Your opinion counts

If you have any comments or suggestions that could help us improve our publications, we would like to hear from you. Please send your comments to:

Taxpayer Services Directorate
Canada Revenue Agency
750 Heron Road
Ottawa ON  K1A 0L5