This publication examines how a client list — commonly referred to as a “book of business” — functions as a critical asset for service-based sole proprietors and whether its existence is sufficient to constitute a “business” for purposes of the Income Tax Act. The analysis considers how courts and CRA have assessed the value and nature of client relationships when determining whether a sole proprietor’s activities cross the threshold from personal services to an active business.
A book of business represents goodwill with measurable economic value, but its existence alone does not automatically elevate a sole proprietor’s activities to the level of a “business” under the Income Tax Act.
The distinction between carrying on a business and earning income from an office or employment has significant tax consequences, including access to the small business deduction, eligible capital property treatment, and the ability to incorporate and claim the capital gains exemption.
Service professionals transitioning from employment to sole proprietorship should carefully document the organizational structure, risk assumption, and client ownership characteristics that distinguish a business from personal services.
We implement corporate reorganizations and provide tax opinions across all nine common law provinces.
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