Legal Definitions - carrying on business

The legal term "carrying on business" refers to the act of actively engaging in commercial activities with the primary goal of generating revenue or profit. It implies a consistent and organized effort to operate as a commercial enterprise, rather than as a casual hobby or a one-time transaction. This concept is crucial in various legal contexts, such as determining tax obligations, regulatory compliance, or the legal status and responsibilities of an entity.

Here are some examples illustrating the concept of "carrying on business":

• Example 1: Determining Taxable Presence

  Imagine a software development company based in Canada that primarily sells its products online. Initially, all its sales and support operations are handled from Canada. However, as its customer base grows in the United States, the company decides to hire a team of sales representatives and establish a small customer support office in New York. By actively marketing its products, employing staff, and maintaining a physical presence to serve customers within the U.S., the company would be considered to be carrying on business in the United States. This would likely trigger obligations to register with U.S. authorities and pay U.S. corporate income taxes on the profits generated from its U.S. operations.

• Example 2: Differentiating a Hobby from a Business for Tax Purposes

  Consider an individual who enjoys crafting custom jewelry in their spare time. For several years, they only make pieces for personal use or as gifts. Occasionally, a friend might offer to buy a piece, and the individual accepts the cost of materials. However, they then decide to create a professional website, invest in specialized tools, purchase raw materials in bulk, consistently market their jewelry online and at local craft fairs, and price their items to ensure a profit. At this point, they are no longer just pursuing a hobby; they are carrying on business. This distinction is important because it allows them to deduct legitimate business expenses from their income for tax purposes and obligates them to report their earnings as business income.

• Example 3: Regulatory Compliance for a New Venture

  A group of entrepreneurs develops a new mobile application designed to connect local dog walkers with pet owners. They spend months in development and beta testing, offering the app for free to a limited number of users to gather feedback. Once the app is stable and they introduce subscription fees for pet owners and a commission structure for dog walkers, they begin to generate revenue. At this stage, by actively facilitating transactions, collecting payments, and providing an ongoing service with the intent to profit, they are carrying on business. This means they must comply with various regulations, such as consumer protection laws, data privacy regulations (like GDPR or CCPA), and potentially local licensing requirements for operating a service business.