This is important because if the CCRA deems that your activities do not meet the definition of a business, your taxes could be reassessed, and you could end up with a hefty tax bill. 

It's worth scrolling through the "Application of Profit Test..." document I've listed under 'Elsewhere on The Web' to read the criteria that the Canada Revenue Agency applies to determine whether or not a business passes the profit test.

Also Known As: REOP , profit test.

Examples:  The business expenses Mary claimed on her income tax form were disallowed because her business did not meet the reasonable expectation of profit test.

Alternate Spellings: None.

Common Misspellings: Resonable expectation of profit.

Related Resources:

Small Business Tax Deductions
Information about small business tax deductions to help you track your business expenses and maximize your business tax deductions.

Maximize Your Business Income Tax Deductions
This first installment of getting ready for tax time covers keeping track of your receipts, deductions related to the cost of doing business, and deductions for home-based businesses.

More Ways to Maximize Your Business Tax Deductions
Covers vehicle expenses, travel-related expenses, employing your child or spouse in your business, advertising expenses, and the kind of expenses that fall into the CRA's 'other' category.

One-Stop Tax Index
Index of Canadian tax-related articles by Susan Ward and useful CRA links for small business owners.

Elsewhere on the Web:

Application of Profit Test to Carrying on a Business
Explanation with examples of the CRA policy regarding a reasonable expectation of profit.

What You Should Know About Audits
Explanation of the auditing process from CRA.