The CRA (Canadian Revenue Agency) has a number of checks it needs to do as it relates to the authenticity of some of the businesses that persons claim to be operating. These checks are referred to as a profit test. There are a number of things that are necessary for determining the reasonable expectation of profit for a person’s business activity. We’ll show you what they are.
The past year’s profit and loss.
The gross income reported over several years.
The reasonable time span over which a profit could be shown to be relevant to the nature of activity.
The business’s activity in relation to another business which is comparable in nature and size in the vicinity.
The time span spent on the activity that is being examined.
The qualifications of the individuals, like the training, education and experience.
The individual’s qualifications for public assistance given to those who are doing business in the same field.
The intended course of action of the individual, as evidenced by their efforts showing an intention to make a profit.
The venture’s capability as capitalized to show a profit after charging depreciation, as well as the operation’s development and the commitments for future expansions, based on the individual’s available resources.
The degree of effort that is used to market or promote the products or services which are supplied by the person.
The various types pf expenditure which were claimed and their reasonable and relevance to the particular activity.
The product or service’s nature such that it has some degree of profit potential.
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