Q. I’ve worked in retail for more than 10 years but I enjoy designing women’s fashion. This year, I spent more than $6,000 for materials, equipment and travel. I give my designs as gifts to family and friends. I was advised by a colleague to register a business and claim the expenses on my tax return. Are these deductible?
— Talia

A. With layoffs continuing at record numbers, many individuals find creative ways to earn income. Many entrepreneurs are born because of increased unemployment. The Canada Revenue Agency website describes factors that distinguish between a business and a hobby.

Expenses incurred for the purpose of earning business income can be deducted for tax purposes. These would include but not limited to such cost as office supplies, accounting/legal fees, travel expenses, advertising and marketing, material costs, etc. Cost incurred for the personal enjoyment of an individual’s hobby are not deductible for tax purposes.

The act of registering a business in itself does not necessarily qualify expenses deductible for tax purposes.

Individuals involved in “hobby” activities such as artist, musicians, photographers, writers and the like should be diligent that their activities are commercial in nature for claiming expenses.

Keep receipts, proper books and records in the event of an audit by the enforcers of our tax system. Legitimate commercial activities should not be denied deductions because of the nature of the activity.

Here are some factors used in determining if expenses are deductible for tax purposes:

• Expenses incurred for earning income

• Reasonable expectation of profit

• Intention of individuals

• Time devoted to business enterprise

• Capital utilized

– Henry Choo Chong, CGA, can be reached at choochonghcga@yahoo.ca and 416-489-7800, ext. 227.

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