What Is The Difference Between Business & Professional Income?

Go to the Government of Canada’s webpage on Business and Professional Income, and you’ll be greeted with – well, a lot more information than you might need. You have to do a lot of looking around to figure out what the difference is. You might think it’s a good idea to go to the Business or Professional Income page, but you’ll find that’s not too much help either. You’d think they’d just explicitly spell out the differences between the two, but hey…

When you get deep into the first linked page, you’ll find the Government talks about professionals – you’ll start to see allusions to accountants, dentists, and other professionals. Diving deeper, you’ll see that the Government references works-in-progress, and that brings us to the major difference between business and professional income.

You see, professionals and business owners are taxed in a very similar manner – if you own, say, an accounting business, you’re a business owner and a professional. You would, however, do your taxes as a professional would, specifically because of works-in-progress (WIPs).

Professionals offer services, and are more often than not, members of professional associations. Sometimes, the services that professionals offer will span the course of two tax years – these are WIPs. The tax considerations for WIPs differ, because some professions can exclude their WIPs from their current year’s income for tax purposes, should they meet certain conditions (though, of course, they would have to list those WIPs on their filing the next year, as they would become completed works).

The only other real difference between business and professional income involves what forms you’ll fill out – you can get more details on the links posted above. Some people have both business and professional income – this can occur if you offer professional services while also selling goods, or if you have multiple businesses. Things can actually get pretty confusing when you have multiple streams of income.

Fortunately, because business income and professional income are so similar, the deductions for the two are virtually the same – though it’s important to check any deductions you’re taking to make sure you’re actually eligible.

To recap, you’re probably considered a professional if you are considered to have WIPs and if you’re part of a professional organization/association. Businesses that primarily offer goods or non-WIP services are often considered businesses, and not professionals, for the purposes of business income.

Hopefully that illuminates some of the more arcane elements of the Canadian tax code, and the differences between professional and business income. Should you have any more questions (as you undoubtedly may), our Winnipeg CPA services are here for you.