Asked
Question for a friend to any accountants in the community. She filed taxes last year for her employment income but didn't include self employment. She doesn't make much from that, was probably about $1400 for the whole year and she spent more than that buying inventory and equipment. I'm trying to explain to her that if she took a loss, it can go against her employment income but is it too late? Personally, I've always filed on time, including my self employment income. I know you can back file for previous years but is it worth doing that if you filed for employment but not self employment? She genuinely didn't know to do it because she took a loss.
Clint’s answer
Hi Kim. As the CRA would direct, all income should be reported, however this sounds like ultimately it would be a moot case now that the taxes have been filed. To do an adjustment that would only end up in non-capital loss carry forward deductions for future business profit, it likely wouldn't be worth the cost. As far as the rule, it would be recommended to do an adjustment, but in all likelihood, if the CRA were to be involved it would end up not being in their advantage.
One more thing.
Business losses cannot be used to reduce employment income for tax purposes in Canada unless they are directly related to the revenue to revenue already incurred. (Operating expenses, Capital Cost Allowances etc...)
December 31, 2024
Update, October 2026: The last point needs correcting. A sole proprietor's net business loss for the year is first used against their other income for that year, employment income included. Only what is left over becomes a non-capital loss to carry back or forward.
From Ask Clint: real questions from a Canadian public finance forum, answered by Clint Cole. Names are changed. This is general information, not advice for your situation, and rules and dollar figures may have changed since Clint answered. Terms