I’m Moving; Can I Deduct My Moving Costs?

By Randall Orser | Personal Income Tax

Happy family with kids moving into a new homeYou can deduct moving expenses when you move to start a new job, business, expand your existing business or are going to school. However, as with everything taxes, there are restrictions. You must have moved at least forty (40) kilometres closer to the new place of business, work or school. So, if you move from Vancouver to Surrey in British Columbia where I’m from, that’s actually only thirty (30) kilometres and you cannot deduct your moving expenses. Now, if you moved from Vancouver to Maple Ridge, you can, as Maple Ridge is forty-five (45) kilometres away.

You cannot deduct your moving expenses from any other type of income, such as investment income or employment insurance benefits, even if you received this income at the new location.

If you received a reimbursement or an allowance for your eligible moving expenses you can only claim your moving expenses if you include the amount you received in your income or if you reduce your moving expenses by the amount received. Canada Revenue Agency (CRA) may ask you to provide a letter from your employer stating that you were not reimbursed for the moving expenses you are claiming.

You need to fill out form T1-M Moving Expenses Deduction and file that with your return. If you electronically file, you don’t need to send receipts; however, keep your receipts just in case CRA asks to see them.

If your net moving expenses (line 21 of For T1-M) that you paid in the year of the move are more than the net eligible income (line 22 of Form T1-M) earned at the new work location in that same year, you can carry forward and deduct the unused part of those expenses from your employment or self-employment income earned at the new work location in the following years. If your eligible moving expenses were paid in a year after the year of your move, you can claim them on your return for the year you paid them against employment or self-employment income earned at the new work location. This may apply if your old residence did not sell until after the year of your move. If this is the case, CRA may ask you to submit Form T1-M with the receipts and explain the delay in selling your home.

You cannot carry back moving expenses to a previous year. For example, if you paid moving expenses in 2013 for a move that occurred in 2012, you cannot claim the expenses paid in 2013 on your 2012 return, even if you earned employment or self-employment income at the new location in 2012.

What are Eligible Moving Expenses?

Transportation and storage costs (such as packing, hauling, moving, in-transit storage, and insurance) for household effects, including items such as boats and trailers.

Travel expenses, including vehicle expenses, meals, and accommodation, to move you and members of your household to your new residence. You can choose to claim vehicle and/or meal expenses using the detailed or simplified method.

Temporary living expenses for up to a maximum of 15 days for meals and temporary accommodation near the old and the new residence for you and members of your household. You can choose to claim meal expenses using the detailed (keep all your receipts) or simplified (claim a flat rate per person) method. If you choose the simplified method, although you do not have to submit detailed receipts for actual expenses, we may still ask you to provide some documentation to establish the duration of the temporary lodging.

Cost of cancelling a lease for your old residence, except any rental payment for the period during which you occupied the residence.

Incidental costs related to your move, which includes the following:

  • Changing your address on legal documents;
  • Replacing driving licences and non-commercial vehicle permits (not including insurance); and
  • Utility hook-ups and disconnections.

Cost to maintain your old residence (maximum of $5,000) when it was vacant after you moved, and during a period when reasonable efforts were made to sell the home. It includes the following:

  • Interest;
  • Property taxes;
  • Insurance premiums; and
  • Heat and utilities expenses.

Cost of selling your old residence, including advertising, notary or legal fees, real estate commission, and mortgage penalty when the mortgage is paid off before maturity.

Cost of purchasing your new residence if you or your spouse or common-law partner sold your old residence as a result of your move.

Moving can be a costly expense, and it’s good to know that you can deduct your expenses. Just remember to keep all your receipts and check with your tax preparer and let them know you have moving expenses. Your tax preparer will need your old address as that needs to be on the T1-M form.

How Does Payroll Work?

By Randall Orser | Small Business

Wages growthYou’ve come to the realization that you need help and have decided to hire an employee. We won’t get into employee vs. subcontractor here, as we did that in a prior post. We’ll discuss your role as the employer, and what you have to do with the deductions you take off the employee’s wages.

As an employer, you must make deductions on amount you pay to your employees. After you’ve made these deductions, you have to remit them, plus your share, to Canada Revenue Agency (CRA). You must file those deductions either electronically via online banking, at the bank or mail using the form PD7A.

Where Do You Start?

If this is your first employee, then you must sign up for a payroll account with CRA. If you already have a business number then your payroll account number is your nine-digit business number followed by RP0001 (RP designates this as a payroll account). You have to register for a payroll account before the first remittance due date. Your first remittance due date is the 15th day of the month following the month in which you began withholding deductions from your employee’s pay. If you didn’t open an account before hiring employees, you still need to calculate deductions and remit them by the due date.  If you fail to deduct or you remit late, you may be assessed a penalty.

The easiest way to open a payroll account is to call CRA at 1-800-959-5525. Have your business number, company information and your information handy when you call.

Paying Employees

For every new employee you hire, you are supposed to get them to fill out a TD1Personal Tax Credits Return. The TD1 is used to determine the amount of tax to be deducted from an employee’s employment income. The TD1 also gets the employee’s personal information, such as Social Insurance Number, birthdate, etc.

There are two forms, one for Federal and the other for the Province/Territory where employed. You do not have to send this TD1 to CRA, though you should keep a copy in the employee’s file. The employee only needs to fill out a TD1 again, if there is a change to their entitlements to their personal tax credits amounts.

If your employee has more than one employer or payer at the same time and has already claimed personal tax credit amounts on another TD1 form, he or she cannot claim them again. If his or her total income from all sources will be more than the personal tax credits claimed on another TD1 form, he or she must check the box on the back of the TD1 form ‘More than one employer or payer at the same time’, enter “0″ on line 13 on the front page and should not complete lines 2 to 12.

Now you have to decide how often you will pay your employee(s). The standard pay periods are bi-weekly (every 2 weeks) and semi-monthly (twice per month either the 1st & 15th or 15th & End-of-month). You need to check your provinces employment standards as to how often you pay employees. In British Columbia, you must pay employees twice per month, a pay period cannot be longer than 16 days, and employees must be paid within 8 days after the pay period ends. If you wish to pay an advance to an employee during the month, you are required to make deductions from that advance.

The best pay period, in my opinion, is every two weeks for hourly employees as then you can cut off on a Saturday and then pay the following week (usually Friday). Semi-monthly pay periods work best for salaried employees

Making Deductions

The deductions you must make from an employees pay are Canada Pension Plan (CPP), Employment Insurance (EI), and income tax. CPP is currently 4.95% of wages after a $3500 exemption and up to a maximum $2356.20. The employer portion is the same as the employees $2356.20. Employment Insurance is 1.88% to a maximum of $891.12. The employer portion is 1.4 times the employee portion to $1247.57 maximum. Income tax will be based on the employee’s basic personal exemptions, CPP & EI, and other factors.

You must give the employee a pay slip, which states:

  • Hours worked and the rate/hour; unless salaried
  • Deductions taken off and the amount; CPP, EI, Income Tax
  • Taxable benefits added to income
  • Year-to-date amounts

Do not put the employees Social Insurance Number on the cheque or paystub.

Making Your Remittance

Generally, you’re remittance is due by the 15th of the month following their withholding. Some larger employers must make remittances more often, but you, more than likely, fit into the 15th category.

CRA prefers if you file your payroll remittance electronically, and will probably make it mandatory in a few years. If you file via online banking, you have to set-up CRA as a payee and then you would follow the directions as per your bank to submit and pay. If you are sending a cheque or paying at the bank you need a PD7A, fill out the form with the total CPP, EI & Income tax deducted, the total remittance, the gross payroll (before deductions), number of employees and the period (Month/Year).

Example:

Mary, located in British Columbia, has one employee paying her $1,250 twice a month. The amounts are: CPP $54.66, EI $23.50 & Tax $136.16 for a total of $214.32 and a net of $1035.68. Here’s Mary’s remittance the following month:

Gross Payroll             $2,500.00       ($1,250 x 2)

CPP                                   218.64      ($54.66 x 2 (2 payrolls) = $109.32 x 2 (employer portion)

EI                                       112.80      ($23.50 x 2.4 (employer portion) = $56.40 x 2 (2 payrolls)

TAX                                   272.32      ($136.16 x 2 payrolls)

Total Remittance       $    603.76

Mary must make this remittance every month as long as the employee is working for her.

Payroll is a serious business and the monies deducted are considered in trust for the employee, so you must make sure that you remit them on time and every time. You will be held personally liable for any amounts you do not pay the CRA, even if you are an incorporated company. I find it best to use software or CRA’s online payroll calculator, that way you ensure you’re making the correct deductions.

Five Signs Your Business Model and Plan Needs Revamping

By Randall Orser | Small Business

revampingImagine a situation where business is great, sales volumes are steadily increasing, your market share is growing and customers just can’t seem to get enough of your company’s latest and greatest product offering. Your company is the envy of the market, the proverbial market leader and an innovator in its field. Then, rather suddenly, everything seems to change. Everything seems to be going wrong. Your costs have increased, your sales have decreased, you’ve lost market share and you’ve hit one roadblock after another. However, did this really happen all at once and simply catch you by surprise, or is it something that has been building over time? In essence, did you simply ignore the warning signs when everything around you was screaming that it was time to redefine, revamp and reinvigorate your business plan? Unfortunately, far too many companies ignore the warning signs until it’s too late. So, what are these warning signs and what must your company do to avoid the damage they can inflict?

1.      Your Company’s Goals and Objectives Change

One of the surest signs your business model needs restructuring is when you, your management team, and your employees, all start veering away from your company’s stated goals and objectives. Often it’s the result of following where your market leads your business. After all, it may simply be a sign of an ever-changing business environment. However, when your marketplace changes, and you must change along with it to remain competitive, then take the time to revisit your company’s goals and objectives within your overall business model. Make sure your business plan accounts for the new realities within your market. It will help provide a clear path forward on pursuing these newly established objectives and provide every employee and manager with common long-term goals.

2.      Your Cost Structure Increases and Revenues Decrease

If there is one essential rule of business it most certainly has to be that profit must be protected at all times. In fact, profit is essential. It’s the reason why your company is in business. While most would assume that an increase in costs, and a decrease in sales, would immediately be recognized and dealt with, reality is entirely different. What ends up happening is that both occur gradually over time. Rarely do sales volumes plummet overnight, unless of course a major contract is lost. Instead, costs seem to slowly increase, while sales numbers slowly decrease. In most cases, the increases and decreases are gradual and not immediately obvious. This is ultimately why companies must continue to assess their overhead by analyzing their direct and indirect expenses, while at the same time tracking their profit margins on sales. Again, these warning signs are gradual in nature, but by the time they’ve taken hold of your company, it’s far too late to adopt any short-term solutions. It’s been a while in the making and it will take your business time to adjust.

3.      You Grow Too Quickly

Granted, it’s difficult to find issues with business growth, especially in today’s economy. However, growing too quickly can have serious consequences, especially if your business plan and model isn’t easily scalable to your new growth. It’s not hard to imagine the consequences of a business that takes on more than it can handle. Sales, marketing and customer service can suffer under the weight of increased customer expectations. Manufacturing can suddenly have issues with quality and production throughput. Inventory and supply chain management can suddenly encounter higher costs of inventory ownership as they struggle to find vendors and creditors able to deal with the extra workload. If not prepared, that increase workload can damage your company’s reputation.

4.      You Ignore Critical Benchmarks

Another sure sign of trouble is when your enterprise ignores key performance indicators (KPI) or continually misses one vital benchmark after another. Your company may have defined these benchmarks early in its history. In fact, your original business plan likely included several key vital benchmarks, ones you deemed essential to securing your long-term future. They were seen as pivotal milestones and periods of reflection, ones where your company could assess the success or failure of individual strategies. Once your company starts ignoring these benchmarks, and glossing over deadlines, it moves towards a period of indifference, one marked by constant rescheduling and missed opportunities. Don’t allow this to happen. Sit down with your management team when you find your enterprise is missing important deadlines. This period is essential in order to redefine your business plan and model going forward. It’s an opportunity to revise your schedule and find ways to make those benchmarks important again.

5.      You Start Losing Your Biggest Customers

Losing a series of large customers has both immediate and definitive long-term consequences. This is often due to the 80-20 “Pareto Principle” or rule. It states that 80% of a company’s sales come from the top 20% of customers. Losing any of these large customers means a sudden and drastic decline in revenue. Unfortunately, a number of enterprises rationalize these losses, especially when they are seemingly ahead of their growth curve. However, losing one customer may seem simple to overcome, but losing multiple large customers isn’t. Therefore, be aware of where your biggest customers are and why they may be willing to move to your competition. If left unchecked, you can suddenly find yourself losing more than you thought possible.

When thinking of the impact of these five aforementioned outcomes, think back to how you originally came up with your business plan. You understood that success wasn’t guaranteed. You were well aware of the failure rates for new enterprises. As such, you laid out a plan that protected your interests, one that defined specific goals and objectives, defined your enterprise’s cost structure, outlined a plan for sustainable growth and finally, defined specific benchmarks and key performance indicators. Pay attention to those original plans before the fifth and most ominous sign occurs; losing big customers has dire consequences. Before that happens, revisit your business plan and revamp your business model to account for your new market reality.

TFSAs: What are they and do I need one?

By Randall Orser | Personal Income Tax

What is a TFSA?

corporation-Tidbits-2013-10-30-300x188TFSA, short for Tax-free Savings Account, allows Canadians, age 18 and over, to set money aside tax-free throughout their lifetime. Each calendar year, you can contribute up to $5,000, any unused TFSA contribution room from the previous year, and the amount you withdrew the year before. As with RRSPs, the term savings implies it’s like a bank savings account, which it is not. You can invest in a variety of investments, such as cash, mutual funds, securities listed on a designated stock exchange, GICs, bonds and certain shares of small business corporations

The main benefit of a TFSA is that all income earned in and withdrawals from a TFSA are generally tax-free. Plus, having a TFSA does not impact federal benefits and credits. It’s a great way to save for short and long-term goals. The only age restriction is that you must be 18 (or age of majority in your province) or older to contribute to a TFSA; there is no upper age limit so you can contribute until you die.

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year. As the account holder, you are the only person who can contribute to your TFSA.

So, do you need a TFSA?

A TFSA can be useful in certain situations. You have already contributed the maximum to your RRSP for the year or just don’t have any contribution room left. TFSAs can be a good way to save for a vehicle, appliances, down payment on a house, and more. The TFSA can also be used in lieu of or in combination with the RRSP Home Buyers Plan. If you are no longer eligible to contribute to RRSPs, due to your age, you can still contribute to your RRSP.

A TFSA is a good way to save for a rainy day as you can make earnings in it and when you need the funds you can take it out tax-free. The best part of a TFSA is that the money you take out can be put back into the TFSA next year and you still get your $5000 maximum contribution that year too.

For young people just starting out, in a low tax bracket now, expecting to increase earnings and be in a higher tax bracket in a few years.  At that time, the TFSAs could be transferred to an RRSP, making the contribution when the tax savings is greater.

Over contributing to your TFSAs will incur a 1% tax of the excess amount. There is no grace room like there is for RRSPs. So, if at any time in a month, you have excess TFSA amount, you are liable to a tax of 1% of your highest excess TFSA amount in that month.

The tax of 1% per month will continue to apply for each month that the excess amount remains in the TFSA. It will continue to apply until whichever of the following happens first:

  • the entire excess amount is withdrawn; or
  • for eligible individuals, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.

Should I borrow to finance a TFSA?

Interest on money borrowed to make TFSA contributions is not a deductible expense for tax purposes. If you have a choice between borrowing to make a TFSA contribution or borrowing to make another investment, you should always borrow to make the other investment. The interest paid on the investment loan may well qualify for tax deduction and thus offset the cost of borrowing.

The TFSA can be a good vehicle to saving for the future or those expenses that crop up unexpectedly. It shouldn’t be your only retirement savings vehicle and a combination of the TFSA and RRSP can a very good way to save for retirement. Or, use to save in your retirement, too.

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