Wednesday, January 27th, 2021

Multiple streams of (taxable) income

By Chris Green on Aug 04 2010 • Filed under Chris Green's Legal Basics

It is the dream of any entrepreneur to be blessed with multiple streams of income. Revenue from one source can tide you over the lean times that any entrepreneur experiences and spreading the income spreads the risk of relying upon a single venture. A series of modest predictable payments from different sources can also smooth out seasonal fluctuations in one’s income. Arguably too, better decisions are made when you are not betting the farm every time you make a business decision.

Technology has made it ridiculously easy to establish such multiple streams. Selling stuff on eBay comes to mind. Many people have morphed an initial experimental foray onto the eBay site into a tiny home-based business. It is an elegant business model: very little cash outlay and very little risk, and an abundance of tools to help you get started andto maintain your business.

Bear in mind though that while eBay may be lucrative, it is not invisible. The Canada Revenue Agency (CRA) has recently taken court action to compel eBay to disgorge the names and trading histories of some of its heaviest hitters. So a word of caution, make sure you document and report all of your eBay related business activities. You are obliged to report your worldwide income, so don’t be fooled by the fact that most of your sales are abroad.

Better than multiple streams of income are multiple streams of passive income such as those attainable through selling space on your website to Google ads. It’s so simple it doesn’t even feel like work, but make no mistake, those commission payments trickling into your PayPal account are still considered to be taxable income, and don’t forget that when you signed up initially for PayPal in order to establish a piggy bank for your Google ads earnings, you were required to provide tax information. The IRS now has that information, and is happy, indeed eager, to share it with its northern cousin.

Another perennial favourite for adding additional streams of income is a multilevel marketing “business opportunity.” They come in a dazzling array of choices , with new opportunities being spawned daily, and offer a tempting opportunity to write off a myriad of expenses against your stodgy T-4 income.

If the tax write-offs are the main attraction to the “business opportunity” you have enrolled in, however, you might want to reconsider it. The CRA applies a litmus test to all such business opportunities since only bona fide expenses incurred in a reasonable expectation of a profit can be deducted. So, if you have sold precious little product and your downline closely resembles your family tree, your expenses may well be disallowed.

Bear in mind that many of the so-called opportunities are nothing more than Ponzi schemes designed to part you from your hard earned money. A good indicator of a Ponzi Scheme is whether the primary focus is upon the recruitment of new sales associates, rather than on the sale of the underlying product.

There are, of course, many of many legitimate multilevel marketing opportunities, but all of them require you to work very,very hard in order to earn your commissions and bonuses and overrides. If your business opportunity requires you to sign up for an auto ship program, and you aren’t a super salesperson, you may be creating an additional stream of expense rather then a stream of income. The end result may be a garage stuffed full of unsaleable product (speaking of which, dear reader, can I offer you a very good deal on a quantity of mileage-enhancing petroleum products?)

Lastly be aware that a huge, largely internet-based industry has developed purporting to teach you how to take advantage of additional income-producing ventures. It's hard to believe that a single “Secret Report” can make you rich. More likely, the report you pay for will say something like this: "To get rich, run an ad just like mine and sell a copy of this report to every sucker who responds. Remember, there is one born every minute!"

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