Your Hobby Could Be Your Business

The ultimate tax shelter: Owning your own business:

The surest way to reduce your taxes is to convert personal expenditures into allowable deductions. Turn even a hobby into a business and you’ll cut your tax bill.
In a more recent case, a high school teacher’s golfing activity was declared an activity with a profit motive, so he could legally deduct what once was his “hobby.”

Those crazy Americans. All they have to do is declare a hobby as a business with the intention of making a profit, although you don’t need to:

Remember you don’t have to show a profit — just a “profit motive.” In one case, despite 20 years of losses, the court found a profit objective and allowed the deduction of business losses in full for one company.

So. I maintain a stupid website. It’s my hobby. I want to make a profit from it. I made $100 from Google Ads last year. Does that mean I can deduct a lot of stupid crap from my income tax?! I suspect Canadian laws aren’t as sneaky. I’ll have to check.

3 Replies to “Your Hobby Could Be Your Business”

  1. Because you do a lot of work at home, Jody, you could probably declare your computer and the heating for your computer room as business expenses. I know a few people, artists and journalist, who are able to write off at least a third of the cost of their computers and other stuff. Jenny’s going to declare herself as a freelancer this year, and eventually I’ll put down “indpendent filmmaker” on income tax.

  2. i would think you could write off a bunch of computer expenditures, your internet payments, that sort of thing… you would have go through the hassle of getting your company registered for all that crap though, i think. i have no idea, but i’ve always wanted to do it as well…

  3. Actually,

    To run a small business on the side you do not need to incur the cost of incorporation. In fact the primary reason for incorporation from a tax perspective would be to minimize your taxes, as corporate tax rates are lower than personal tax rates. Of course, the limited liability afforded to those who incorporate is an important factor to consider as well, but then who is going to lend “Jody Services Ltd.” money without a letter of security from the president, Mr. Jody himself. So in fact the limited liability is effectively circumvented by most creditors of small incorporated businesses by obtaining signatory letters from the owners anyway.

    Having said all of this, I would personally report my hobby (which likely is losing money – which is why it is fun and called a hobby) to CCRA as part of my regular T1 General (use a T2032 schedule) and therefore reduce my taxable income. By reducing taxable income the taxes deducted at source on your regular pay will be higher than they should have been for the year. All else being equal this will effectively allow you to receive tax refund in the amount that you were “over-taxed”.

    The only real concern here is that you must be engaged in a “going concern” – defined as: engaging in an economic endeavor in which you have a reasonable expectation to eventually earn a profit. CCRA’s thought behind this is that eventually you will make lots of extra income which they will collect their share through your regular personal tax rate.

    The only catch here is that you can’t continue to claim losses forever. Eventually even CCRA will become suspicious when you lose money year after year. But they will only become suspicious if you continue to lose money running the same business, so you would need to change hobbies…. I mean economic endeavors every couple of years always in an attempt to find that right money making opportunity which will allow you to pay huge tax bills to CCRA. Hint: at this point incorporate.

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