Business and investment income
Income from business or property
Section 9 defines income from business or property as profit from that source — revenue minus the expenses incurred to earn it.
Plain-language explanation
Section 9 is the core provision for business owners and investors. Your income from a business or property is your *profit* — determined using generally accepted accounting principles (GAAP) as modified by the Act.
"Profit" from business means your revenues minus the expenses you incurred to earn those revenues. The Act then layers restrictions on top (s.18 limits certain deductions) and additions (s.12 includes certain receipts).
Property income covers interest, dividends, and rent received — though dividends are grossed up under s.82 and rent may constitute business income if services are significant (like a hotel vs. a simple lease).
Accrual basis: Unlike employment, business income is recognized when earned (accrual basis), not when cash is received. If you invoice a client in December 2025 and collect in January 2026, the income belongs to 2025.
Source matching: Losses from one business generally offset income from another business or from employment. But losses from a property (rental) are subject to the "reasonable expectation of profit" test — CRA can deny losses from a property that never realistically makes money.
Example
Marco runs a web design freelance business. He invoiced $120,000 in 2026 and incurred $35,000 in deductible expenses (software, equipment, home office, subcontractors). His s.9 business income is $85,000, reported on Schedule T2125.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Supreme Court of Canada in Stewart v. Canada narrowed the "reasonable expectation of profit" (REOP) doctrine. CRA can no longer deny rental or business losses solely because a profit was unlikely — only applies where the activity has a personal element.
Before
CRA routinely denied losses under the REOP doctrine
After
REOP only applies to activities with a personal/hobby element; commercial activities presumed to have a business purpose
Common questions
Is rental income business income or property income? +
Usually property income. But if you provide significant services beyond a landlord's usual services (meals, maid service, frequent turnover as in a hotel), it becomes business income. The distinction matters because business income earns RRSP room; property income does not.
Can I deduct capital expenditures from business income? +
Not immediately. Capital expenditures (equipment, vehicles, renovations) are capitalized and depreciated via Capital Cost Allowance (CCA) under s.20. You deduct CCA over several years rather than the full cost in year one.
What is the "reasonable expectation of profit" rule? +
CRA can challenge business or property losses if there is no realistic prospect of profitability. This is most common for rental properties with persistent losses, farms, and hobby-style activities. The Supreme Court in Stewart v. Canada (2002) narrowed this doctrine, but CRA still applies it to losses with a strong personal-use element.
Key terms
Related calculators
Related guides
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 9. — 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.