What must be included in business or property income
Income inclusions — amounts to include in income from business or property
Section 12 lists specific amounts that must be included in income from business or property even though they might not appear to be "profit" under normal accounting principles.
Plain-language explanation
Section 12 supplements s.9 by explicitly requiring certain amounts to be included in business or property income. While s.9 captures profit generally, s.12 removes any doubt about specific receipts.
Key inclusions:
*s.12(1)(a) — Services not yet rendered:* If you receive payment for services you have not yet performed, you must include it in income. A refundable reserve may be available under s.20(1)(m).
*s.12(1)(b) — Amounts receivable:* An amount receivable at year-end for goods delivered or services rendered must be included in income, even if cash has not yet been received. This enforces the accrual principle for business income.
*s.12(1)(c) — Interest:* Interest income is included when received or receivable, depending on the terms of the debt. For debt obligations with no fixed interest dates, s.12(4) requires annual accrual of interest.
*s.12(1)(x) — Inducement payments:* Amounts received from government or a third party as an inducement or assistance (e.g., government grants, landlord inducements) are generally included in income unless they reduce the cost of a related asset.
Understanding s.12 prevents inadvertent omission of income and helps plan the timing of cash receipts.
Example
Nadia runs a software company and receives a $24,000 government grant to develop new software in 2026. Under s.12(1)(x), this grant is income unless she applies it to reduce the cost of the software asset. She also has $8,000 in unpaid invoices at December 31 — these are "receivable" and must be included in 2026 income under s.12(1)(b).
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Annual accrual rules for investment contracts strengthened to capture strip bond and compound-interest accruals annually, preventing GIC deferral strategies.
Common questions
Do I pay tax on a government grant for my business? +
Generally yes. Government grants are included in income under s.12(1)(x) unless you elect to reduce the cost of the related property. If you use the grant to buy equipment, you can reduce the CCA base instead of taking it into income.
What is the annual interest accrual rule? +
Under s.12(4), interest on investment contracts (like GICs and strip bonds) must be accrued annually on each anniversary of the contract, even if the interest is not paid until maturity. This prevents indefinitely deferring tax on compounding interest.
Key terms
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 12. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.