Many of us have hobbies that bring us joy; some of us have
hobbies that bring us additional income. Whether you bake cupcakes
and sell them to co‐workers or go fishing after work and sell
what you catch to friends, any profit you make from your passion
could be considered business income, subject to income tax in
Canada.
So how do you know if you need to report the income earned from
these kinds of "hobby business" activities on your tax
return? The answer depends on whether you're pursuing the
activity primarily as a hobby or as a business.
Differentiating between a hobby and a business
When evaluating whether an activity is considered a hobby or a
business, the previous position of the Canada Revenue Agency (CRA)
was to apply the reasonable expectation of profit (REOP) test to
determine if a taxpayer's activity constitutes a source of
income under the Income Tax Act (the Act). In applying the REOP
test, the following criteria were generally
considered:1
