Business or Professional Income

by Glenda
(BC, Canada)

What is the difference between business and professional income on the T2125?

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Hi Glenda,

For me, the main distinguishing factor between business income and professional income is the type of business.

Business income is defined as non-professional business income.

So that begs the question, what is professional income?

If you look at CRA's website and/or guides, when discussing professional income, they will make reference to the following professions:



lawyer (including a notary in Quebec)

medical doctor



While it may not be exclusive to the professions listed above, you will notice that these types of professions usually require licensing to practise the profession.

Often professional income will have a work-in-progess inventory component as well which relates to the services being offered.

Hope that helps Glenda.

Comments for Business or Professional Income

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Dec 09, 2011
Still a little confused:)
by: Liz

To add to Glenda's question, I am starting a small home based bookkeeping business.

I am not an accountant or a licensed professional but my billing would be similar to an accountant in that I may have work-in-progress income at year-end.

Would my income still be considered business income or is it professional income? I'm leaning towards business income but it's such a fine line! Thanks

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Liz, I actually asked myself the same question when the new form came out. Good arguments can be made for both.

Because of the work-in-progress factor, the fact I'm certified, and that I book my fees to "professional fees", I opted to record it as professional income.

It will not affect your taxes owing, no matter what section you decide to report it. Just make your best judgement call and move on to something else.

Feb 08, 2016
Think Twice
by: Anonymous

Careful: Your decision (business vs professional income) could in fact lead to different taxes owing. Depending on the timing of your work-in-progress balance and your choice of accounting method (accrual or cash), you could end up paying more or less tax.

Your should talk to a professional accountant to determine the proper classification so that you don't end up on the wrong side of the CRA's interpretation.

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