Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

SUBDIVISION BIncome or Loss from a Business or Property

Basic Rules

Marginal note:Income

• 9 (1) Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.

• Marginal note:Loss

  (2) Subject to section 31, a taxpayer’s loss for a taxation year from a business or property is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source with such modifications as the circumstances require.

• Marginal note:Gains and losses not included

  (3) In this Act, “income from a property” does not include any capital gain from the disposition of that property and “loss from a property” does not include any capital loss from the disposition of that property.

Marginal note:Valuation of inventory

• 10 (1) For the purpose of computing a taxpayer’s income for a taxation year from a business that is not an adventure or concern in the nature of trade, property described in an inventory shall be valued at the end of the year at the cost at which the taxpayer acquired the property or its fair market value at the end of the year, whichever is lower, or in a prescribed manner.

• Marginal note:Adventures in the nature of trade

  (1.01) For the purpose of computing a taxpayer’s income from a business that is an adventure or concern in the nature of trade, property described in an inventory shall be valued at the cost at which the taxpayer acquired the property.

• Marginal note:Certain expenses included in cost

  (1.1) For the purposes of subsections 10(1), 10(1.01) and 10(10), where land is described in an inventory of a business of a taxpayer, the cost at which the taxpayer acquired the land shall include each amount that is

  • (a) described in paragraph 18(2)(a) or (b) in respect of the land and for which no deduction is permitted to the taxpayer, or to another person or partnership that is

    • (i) a person or partnership with whom the taxpayer does not deal at arm’s length,

    • (ii) if the taxpayer is a corporation, a person or partnership that is a specified shareholder of the taxpayer, or

    • (iii) if the taxpayer is a partnership, a person or partnership whose share of any income or loss of the taxpayer is 10% or more; and

  • (b) not included in or added to the cost to that other person or partnership of any property otherwise than because of paragraph 53(1)(d.3) or subparagraph 53(1)(e)(xi).

• Marginal note:Continuation of valuation

  (2) Notwithstanding subsection 10(1), for the purpose of computing income for a taxation year from a business, the inventory at the commencement of the year shall be valued at the same amount as the amount at which it was valued at the end of the preceding taxation year for the purpose of computing income for that preceding year.

• Marginal note:Methods of valuation to be the same

  (2.1) Where property described in an inventory of a taxpayer’s business that is not an adventure or concern in the nature of trade is valued at the end of a taxation year in accordance with a method permitted under this section, that method shall, subject to subsection 10(6), be used in the valuation of property described in the inventory at the end of the following taxation year for the purpose of computing the taxpayer’s income from the business unless the taxpayer, with the concurrence of the Minister and on any terms and conditions that are specified by the Minister, adopts another method permitted under this section.

• Marginal note:Incorrect valuation

  (3) Where the inventory of a business at the commencement of a taxation year has, according to the method adopted by the taxpayer for computing income from the business for that year, not been valued as required by subsection 10(1), the inventory at the commencement of that year shall, if the Minister so directs, be deemed to have been valued as required by that subsection.

• Marginal note:Fair market value

  (4) For the purpose of subsection 10(1), the fair market value of property (other than property that is obsolete, damaged or defective or that is held for sale or lease or for the purpose of being processed, fabricated, manufactured, incorporated into, attached to, or otherwise converted into property for sale or lease) that is

  • (a) work in progress at the end of a taxation year of a business that is a profession means the amount that can reasonably be expected to become receivable in respect thereof after the end of the year; and

  • (b) advertising or packaging material, parts, supplies or other property (other than work in progress of a business that is a profession) that is included in inventory means the replacement cost of the property.

• Marginal note:Inventory

  (5) Without restricting the generality of this section,

  • (a) property (other than capital property) of a taxpayer that is advertising or packaging material, parts or supplies or work in progress of a business that is a profession is, for greater certainty, inventory of the taxpayer;

  • (b) anything used primarily for the purpose of advertising or packaging property that is included in the inventory of a taxpayer shall be deemed not to be property held for sale or lease or for any of the purposes referred to in subsection 10(4); and

  • (c) property of a taxpayer, the cost of which to the taxpayer was deductible by virtue of paragraph 20(1)(mm), is, for greater certainty, inventory of the taxpayer having a cost to the taxpayer, except for the purposes of that paragraph, of nil.

• Marginal note:Artistic endeavour

  (6) Notwithstanding subsection 10(1), for the purpose of computing the income of an individual other than a trust for a taxation year from a business that is the individual’s artistic endeavour, the value of the inventory of the business for that year shall, if the individual so elects in the individual’s return of income under this Part for the year, be deemed to be nil.

• Marginal note:Value in later years

  (7) Where an individual has made an election pursuant to subsection 10(6) for a taxation year, the value of the inventory of a business that is the individual’s artistic endeavour shall, for each subsequent taxation year, be deemed to be nil unless the individual, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, revokes the election.

• Definition of business that is an individual’s artistic endeavour

  (8) For the purpose of this section, business that is an individual’s artistic endeavour means the business of creating paintings, prints, etchings, drawings, sculptures or similar works of art, where such works of art are created by the individual, but does not include a business of reproducing works of art.

• Marginal note:Transition

  (9) Where, at the end of a taxpayer’s last taxation year at the end of which property described in an inventory of a business that is an adventure or concern in the nature of trade was valued under subsection 10(1), the property was valued at an amount that is less than the cost at which the taxpayer acquired the property, after that time the cost to the taxpayer at which the property was acquired is, subject to subsection 10(10), deemed to be that amount.

• Marginal note:Loss restriction event

  (10) Notwithstanding subsection (1.01), property described in an inventory of a taxpayer’s business that is an adventure or concern in the nature of trade at the end of the taxpayer’s taxation year that ends immediately before the time at which the taxpayer is subject to a loss restriction event is to be valued at the cost at which the taxpayer acquired the property, or its fair market value at the end of the year, whichever is lower, and after that time the cost at which the taxpayer acquired the property is, subject to a subsequent application of this subsection, deemed to be that lower amount.

• Marginal note:Loss restriction event

  (11) For the purposes of subsections 88(1.1) and 111(5), a taxpayer’s business that is at any time an adventure or concern in the nature of trade is deemed to be a business carried on at that time by the taxpayer.

• Marginal note:Removing property from inventory

  (12) If at any time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before that time, a property that was immediately before that time described in the inventory of the business or the part of the business, as the case may be, (other than a property that was disposed of by the taxpayer at that time), the taxpayer is deemed

  • (a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time; and

  • (b) to have received those proceeds immediately before that time in the course of carrying on the business or the part of the business, as the case may be.

• Marginal note:Adding property to inventory

  (13) If at any time a property becomes included in the inventory of a business or part of a business that a non-resident taxpayer carries on in Canada after that time (other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time), the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.

• (14) [Repealed, 2017, c. 33, s. 2]

• (14.1) [Repealed, 2017, c. 33, s. 2]

• Marginal note:Derivatives

  (15) For the purposes of this section, property of a taxpayer that is a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement, or any similar agreement is deemed not to be inventory of the taxpayer.

Marginal note:Mark-to-market election

• 10.1 (1) Subsection (4) applies to a taxpayer in respect of a taxation year and subsequent taxation years if the taxpayer elects to have subsection (4) apply to the taxpayer and has filed that election in prescribed form on or before its filing-due date for the taxation year.

• Marginal note:Revocation

  (2) The Minister may, on application by the taxpayer in prescribed form, grant permission to the taxpayer to revoke its election under subsection (1). The revocation applies to each taxation year of the taxpayer that begins after the day on which the taxpayer is notified in writing that the Minister concurs with the revocation, on such terms and conditions as are specified by the Minister.

• Marginal note:Subsequent election

  (3) Notwithstanding subsection (1), if a taxpayer has, under subsection (2), revoked an election, any subsequent election under subsection (1) shall result in subsection (4) applying to the taxpayer in respect of each taxation year that begins after the day on which the prescribed form in respect of the subsequent election is filed by the taxpayer.

• Marginal note:Application

  (4) If this subsection applies to a taxpayer in respect of a taxation year,

  • (a) if the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the taxation year, each eligible derivative held by the taxpayer at any time in the taxation year is, for the purpose of applying the provisions of this Act and with such modifications as the context requires, deemed to be mark-to-market property (as defined in subsection 142.2(1)) of the taxpayer for the taxation year; and

  • (b) in any other case, subsection (6) applies to the taxpayer in respect of each eligible derivative held by the taxpayer at the end of the taxation year.

• Marginal note:Definition of eligible derivative

  (5) For the purposes of this section, an eligible derivative, of a taxpayer for a taxation year, means a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement, held at any time in the taxation year by the taxpayer, if

  • (a) the agreement is not a capital property, a Canadian resource property, a foreign resource property or an obligation on account of capital of the taxpayer;

  • (b) either

    • (i) the taxpayer has produced audited financial statements prepared in accordance with generally accepted accounting principles in respect of the taxation year, or

    • (ii) if the taxpayer has not produced audited financial statements described in subparagraph (i), the agreement has a readily ascertainable fair market value; and

  • (c) where the agreement is held by a financial institution (as defined in subsection 142.2(1)), the agreement is not a tracking property (as defined in subsection 142.2(1)), other than an excluded property (as defined in subsection 142.2(1)), of the financial institution.

• Marginal note:Deemed disposition

  (6) If this subsection applies to a taxpayer in respect of each eligible derivative held by the taxpayer at the end of a taxation year, for each eligible derivative held by the taxpayer at the end of the taxation year, the taxpayer is deemed

  • (a) to have disposed of the eligible derivative immediately before the end of the year and received proceeds or paid an amount, as the case may be, equal to its fair market value at the time of disposition; and

  • (b) to have reacquired, or reissued or renewed, the eligible derivative at the end of the year at an amount equal to the proceeds or the amount, as the case may be, determined under paragraph (a).

• Marginal note:Election year — gains and losses

  (7) If a taxpayer holds, at the beginning of its first taxation year in respect of which an election referred to in subsection (1) applies (in this subsection referred to as the “election year”), an eligible derivative and, in the taxation year immediately preceding the election year, the taxpayer did not compute its profit or loss in respect of that eligible derivative in accordance with a method of profit computation that produces a substantially similar effect to subsection (6), then

  • (a) the taxpayer is deemed

    • (i) to have disposed of the eligible derivative immediately before the beginning of the election year and received proceeds or paid an amount, as the case may be, equal to its fair market value at that time, and

    • (ii) to have reacquired, or reissued or renewed, the eligible derivative at the beginning of the election year at an amount equal to the proceeds or the amount, as the case may be, determined under subparagraph (i);

  • (b) the profit or loss that would arise (determined without reference to this paragraph) on the deemed disposition in subparagraph (a)(i)

    • (i) is deemed not to arise in the taxation year immediately preceding the election year, and

    • (ii) is deemed to arise in the taxation year in which the taxpayer disposes of the eligible derivative (otherwise than because of paragraphs (6)(a) or 142.5(2)(a)); and

  • (c) for the purpose of applying subsection 18(15) in respect of the disposition of the eligible derivative referred to in subparagraph (b)(ii), the profit or loss deemed to arise because of that subparagraph is included in determining the amount of the transferor’s loss, if any, from the disposition.

• Marginal note:Default realization method

  (8) If subsection (4) does not apply to a taxpayer referred to in paragraph (4)(b) in respect of a taxation year, a method of profit computation that produces a substantially similar effect to subsection (6) shall not be used for the purpose of computing the taxpayer’s income from a business or property in respect of a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement for the taxation year.

• Marginal note:Interpretation

  (9) For the purposes of subsections (4) to (7), if an agreement that is an eligible derivative of a taxpayer is not a property of the taxpayer, the taxpayer is deemed

  • (a) to hold the eligible derivative at any time while the taxpayer is a party to the agreement; and

  • (b) to have disposed of the eligible derivative when it is settled or extinguished in respect of the taxpayer.

Marginal note:Proprietor of business

• 11 (1) Subject to section 34.1, if an individual is a proprietor of a business, the individual’s income from the business for a taxation year is deemed to be the individual’s income from the business for the fiscal periods of the business that end in the year.

• Marginal note:Reference to “taxation year”

  (2) Where an individual’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, unless the context otherwise requires, a reference in this Subdivision or section 80.3 to a “taxation year” or “year” shall, in respect of the business, be read as a reference to a fiscal period of the business ending in the year.