Almost every practicing bookkeeper has clients like this: people who genuinely believe they’re running a business, even though what they’re doing often sits right on the border between personal consumption and commercial activity.
Most often, we’re talking about participants in multi-level marketing (MLM), such as distributors for companies like Amway, Herbalife, or Shaklee. They view what they do as a full-fledged business and see themselves as independent entrepreneurs—rather than customers or participants in a network marketing structure.
In practice, the model often looks like this: a person regularly purchases products, and a significant portion is used personally or within the family. At the same time, they are heavily involved in the “business infrastructure”—attending training events, leadership programs, motivational seminars, and personal development courses, all of which are promoted as part of “building the business.”
But the tax return tells a different story. Business income is reported, business expenses are claimed, and very often the result is a business loss. And this pattern may repeat year after year, without a consistent path to profitability.
One of the recent Tax Updates discussed a very illustrative court case: Sennaike v. The King.
The taxpayer participated in Amway’s network marketing system and claimed business losses for several years. The actual numbers were modest: revenue was just over $3,000 in 2019 and around $5,500 in 2020. Meanwhile, expenses steadily increased and significantly exceeded income. As a result, the taxpayer reported a negative net result year after year, claimed it as a business loss, and used it to reduce taxable income.
At that stage, the court was not primarily focused on the arithmetic of income and expenses, but on a more fundamental question:
Was this activity truly being carried on as a business with the intent to earn a profit—or was it, in substance, something else that cannot be treated as a source of business income?
The taxpayer’s testimony showed that the main focus was not product sales. Instead, there was a strong emphasis on self-development, entrepreneurial mindset, and personal growth.
In that context, participation in Amway looked less like a structured business model and more like an environment for personal development. Much of the time and money went toward training, leadership programs, and personal effectiveness courses—not toward building actual sales.
Additional issues came up as well.
The financial statements did not reflect the true volume of sales, and cost of goods sold was not tracked at all. The court specifically noted: if an activity is genuinely being pursued for profit, ignoring such basic accounting elements does not make much sense.
Income remained low while expenses were much higher. There was no clear plan for reaching profitability, and the activity was not organized in a typical commercial way—for example, there were no established payment methods such as cheque, e-transfer, or credit card.
Taken together, the court concluded that the activity was primarily personal in nature and was not being conducted as a true commercial venture. Therefore, it was not recognized as a source of taxable business income, and the reported losses could not be used to reduce the taxpayer’s tax base.
When you review cases like this, it’s hard not to draw parallels with real client situations—especially with those who sincerely don’t understand why they can’t “deduct all expenses” when they are genuinely trying, investing time and money, taking courses, and identifying as entrepreneurs.
But the CRA (and the courts) look not at what someone believes or intends in theory, but at how the activity is actually carried on in practice. The key question is whether there is a real profit motive, and whether the person operates according to normal commercial standards.
The practical takeaway is fairly clear.
MLM activity is a higher-risk tax area—especially when products are purchased primarily for personal consumption and when most expenses relate to training, coaching, seminars, and motivational programs.
Simply being a “distributor” does not automatically mean the activity will be treated as a business for Canada Revenue Agency purposes. To be recognized as a business, there must be real indicators of commercial activity—and, at a minimum, a genuine effort and intention to earn a profit.
