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Do you have to claim expenses with CRA for a busines that has income that equals out to zero?

By Hank Bulmash |

Cindy asked:

My husband works full time; however, for the last two years he has been trying to start up a side freelance business. I used to complete our taxes myself; however, for 2011 I went to an accountant to file the taxes as we had to claim expenses etc. It was more involved than I was used to filing. He only had revenue of around $2,000 and therefore I am not sure if it is even worth us claiming this or if it is law that we have to?

I have not yet filed for 2012 and I know with the expenses involved it will reduce the income to zero anyways so to save all of the hassle of having to track our auto gas bills, mobile phone bills, percentage of home bills- since it will reduce to "zero" income - is it ok to just consider this a "hobby" and not have to go through the whole claiming process with revenue canada- just claim our full-time jobs with T4 slips? Or is this compulsory?

Hank Bulmash answered:

You should include the revenue from the side business on your tax return. The courts have held that certain activities are indeed hobbies -- but the point at issue in those cases came about because the taxpayer tried to claim large losses which CRA denied.

It is the law to reflect all revenue earned from all sources. Not declaring all revenue is can be considered tax evasion.

That said, completing the tax returns should not be that difficult. Your accountant or bookkeeper should be able to help you set up a system to deal with this fairly easily. The first year is the hardest.

It sounds like most of your husband's expenses are mostly for a home office and car. You can deduct lease costs or depreciation on your car.

If the car expenses, mobile phone, entertainment and supplies and other out of pocket costs exceed revenues, your husband can claim a loss against other income.

You cannot claim a loss against other income based on your home office expenses -- but home office expenses can be carried forward to be claimed in the future against business income.

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