There are a few things to consider before you make a large CCA claim on your Sole Proprietorship and generate a Non-Capital Loss from it. CRA will take these things into account if they decide to review your claim and may disallow the claim altogether if you cannot prove your business is legitimate and you have a reasonable expectation of profit.
- Is your business active at all and do you expect to generate income from the purchase of this asset?
- Did you generate any income at all from your sole proprietorship to apply the CCA claim against?
- Is the asset you purchased a replacement or upgrade for an existing asset, and will it be used solely for this business?
In addition to having a reasonable expectation of profit, a side business has to be "clearly commercial in nature", as ruled by the courts. For example, suppose you have a full-time job and decide to start a side business offering flight services and to do so you purchase an aircraft. You have few or no customers, little or no revenue, and the aircraft is used mostly for personal transportation, but you claim business expenses and CCA for the aircraft against your other income on your tax return.
In this case, the CRA may disallow your expense claims, given that:
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