Category Archives for "Business Income Taxes"

Surviving A Compliance Review With Canada Revenue Agency

By Randall Orser | Business Income Taxes

The dreaded audit has been somewhat replaced by the ‘compliance review’, which is a nicer way of saying we’re coming in to look at your books but won’t probe you as much. As I write this I have had a couple of clients go through a compliance review, both turned out to be nothing. What they are doing with the compliance review, especially for new businesses, is to ensure you’re doing things correctly, and are filing your remittances correct and on time. Canada Revenue Agency (CRA) is trying to ensure all businesses are compliant with their business remittance requirements before it gets too out of hand. 

The first thing you’ll get from CRA is either a phone call or letter stating what they are reviewing and when. If it is a phone call, get them to fax you what was discussed in the conversation. I always find it’s best to do this step, as there are no mix-ups as to what was required.  

The next thing is to call your bookkeeper or accountant and let them know CRA is doing a review. Follow this up with the letter you receive. I find it best to get the bookkeeper or accountant to deal with CRA in these situations, as they understand what reports CRA will need, and may have better access to the accounting system. Also, the bookkeeper/accountant will only give them what they ask, where you may give them too much information. 

The auditor will examine books and records, documents, and information (collectively referred to as records) such as:

  • Information available to the CRA (such as tax returns previously filed, credit bureau searches, or property database information);
  • Your business records (such as ledgers, journals, invoices, receipts, contracts, and bank statements);
  • Your personal records* (such as bank statements, mortgage documents, and credit card statements);
  • The personal or business records of other individuals or entities not being audited (for example, a spouse, family members, corporations, partnerships, or a trust [settlor, beneficiary, and trustee]); and
  • Adjustments made by your bookkeeper or accountant to arrive at income for tax purposes.        

*Never give personal records unless absolutely asked, and push not to provide them.            CRA will use any monies received in your personal account against you, even if it is a cheque from grandma.

You need to have this entire information ready for the review, and you may have to meet with your bookkeeper/accountant before the audit and go through everything. Don’t leave anything out that CRA has requested, and, of course, don’t give them any more than they ask.  

Your best bet for surviving this review is to remain calm, deal with the auditor in a professional manner, and if you feel not being present is best then just have your bookkeeper/accountant meet with the auditor. There is no reason to panic, as this is nothing personal, you have been selected for review either as a random pick or that you are a relatively new business.

Have You Not Filed Your Tax Return Yet?

By Randall Orser | Business Income Taxes , Personal Income Tax

Have You Not Filed Your Income Tax Yet?

Every year in Canada we must file a personal income tax return by April 30th(June 15thfor those who are self-employed). As with anything in our busy, hectic lives, we do forget; however, what if it’s your tax filing that you forgot? That can have serious consequences depending on what you owe, and for what benefit programs you are qualified.  

The first thing is Don’t Panic! Okay you will but calm down. If you’ve realized you haven’t filed your taxes, and it’s not too late in the year, you’ll be okay. Yes, if you owe money, you’ll have a penalty and interest, however, catch it soon enough and it won’t be that much. Of course, if you are getting a refund, then you won’t be charged any penalty. And, getting benefit payments will definitely be delayed, as you haven’t filed, though you will get a catch-up payment. 

Canada Revenue Agency (CRA) has now allowed the electronic filing of tax returns until January of the following year, so for the 2017 filing year you can electronically file until January 16th. Eventually, I believe, we’ll be able to file electronically for any tax year any time. 

Many people end up not filing for fear that they will owe or owe way more than they can pay at the moment. It’s much better to file and owe than not file and owe, as CRA tends to get a bit anxious when they realize you owe but haven’t filed and paid yet. Of course, these same people think they’re going to owe tons of money, and, in the end, don’t owe near as much as they thought, or, hilariously, get a refund. I love the expression on peoples’ faces when I tell them they owe $X, and they were thinking $XXX. 

What are the penalties for filing late? If you owe tax for 2017 and do not file your return on time, CRA will charge you a late-filing penalty. The penalty is 5%of your 2017 balance owing, plus 1%of your balance owing for each full month your return is late, to a maximum of 12 months.  

For example, you owe $3,200 and don’t file until November 15th2017. In this case you owe $583.91 in penalties plus 5% interest compounded daily (approximately $194). That’s a total balance owing of $3,977.91. Your penalties/interest are 24.3% of the original balance owing. 

If you failed to report an amount on your return for 2017,andyou also failed to report an amount on your return for 2014, 2015, or 2016, you may have to pay a federal and provincial/territorial repeated failure to report income penalty. The federal and provincial/territorial penalties are each 10%of the amount that you failed to report on your return for 2017. Your late-filing penalty for 2017 may be 10%of your 2017 balance owing, plus 2%of your 2017 balance owing for each full month your return is late, to a maximum of 20 months. That can get quite steep depending on how much you owe. 

Using our example above of owing $3,200, and this is another year of filing late your penalty would be $764.09 for a total of $3,964.09, and interest would be $203 for a total of $4,167.09 (30.2% of the original amount owing). 

From our examples above it is much better to pay upon filing (or pay by installments when you believe you have a big balance owing). If you know you’re going to owe, but don’t have the funds at filing, file anyway and work out some kind of payment arrangement with CRA.  

Do you have multiple years to file? Can’t find your slips? If your slips are normally filed with CRA (such as T4s, T5s, etc.) then you can request copies and use those to file your returns. Your tax preparer can do an auto-fill return for 2015 and 2016, and if you gave them consent, could grab the other years too. CRA no longer worries about returns that are more than 10 years old, unless you ended up owing in those years. You will have to paper file for 2012 and prior. If you believe you will owe for these prior years, you may also want to look into the Voluntary Disclosures Program.  

With the Voluntary Disclosures Program, you may file a disclosure to correct inaccurate or incomplete information, or to provide information you may have omitted in your previous dealings with the CRA. More specifically, this includes information you have previously reported that was not complete, information you have reported incorrectly, or information you did not provide previously to the CRA.

Canada has a high compliance rate (94.5%) of people who file their taxes on time. If you find you’re not one of those, you may need to look into why you’re always late filing. Are you using a tax preparer now? Maybe you should. I hound my clients to get me their stuff, and most appreciate that. Of course, once you’re caught up always ensure you file on time after that so you avoid higher penalties.

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How do you calculate your installment payments?

By Randall Orser | Business Income Taxes

Now that you’ve determined you need to make installments to Canada Revenue Agency (CRA), how do you do that? Your installments are based on your net tax owing (what you owed on your tax return), any Canada Pension Plan (CPP) contributions payable on self-employment and other earnings, and any voluntary employment insurance (EI) premiums payable on self-employment and other eligible earnings. Once you know that information you can calculate your installments for the current year.

Calculation options

You have three options to choose from to calculate your instalment payments:

No-calculation option

This option is best for you if your income, deductions, and credits stay about the same from year to year.

CRA will give the no-calculation option amount on the instalment reminders that CRA will send you. CRA determine the amount of your instalment payments based on the information in your latest assessed tax return.

Prior-year option

This option is best for you if your 2018 income, deductions, and credits will be similar to your 2017 amount but significantly different from those in 2016.

You determine the amount of your instalment payments based on the information from your tax return for the 2017 tax year. Use the Calculation chart for instalment payments for 2018 to help you calculate your total instalment amount due.

If you use the prior-year option and make the payments in full by their 2018 due dates, CRA will not charge instalment interest or a penalty unless the total instalment amount due you have calculated is too low. For more information, see Instalment interest and penalty charges.

Current-year option

This option is best for you if your 2018 income, deductions, and credits will be significantly different from those in 2017 and 2016.

You determine the amount of your instalment payments based on your estimated current-year (2018) net tax owing, any CPP contributions payable, and any voluntary EI premiums. Use the Calculation chart for instalment payments for 2018 to help you calculate your total instalment amount due.

If you use the current-year option and make the payments in full by their 2018 due dates, CRA will not charge instalment interest or a penalty unless the amounts you estimated when calculating your total instalment amount due CRA too low. For more information, see Instalment interest and penalty charges.

By choosing the best option for you, you will not overpay your tax during the year or have a large amount of tax to pay when you file your tax return. You do not have to tell CRA which option you choose.

Instalment reminder received in August 2018

If you only received an instalment reminder in August and the reminder does not mention a March or June 2018 instalment payment, follow the instructions that apply to you:

No-calculation option – Pay the amount shown in box 2 of your reminder for September 15 and December 15.

Prior-year option – Calculate your 2017 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.

Current-year option – Estimate your current-year 2018 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.

You want to reduce or eliminate the amount of your instalment payments

You can reduce or eliminate the amount of your instalment payments if you reduce your net tax owing. You can do this by having tax withheld, or by increasing the amount of tax withheld, from the following types of income:

Income tax cannot be withheld from certain types of income, such as self-employment, investment, and rental income, and capital gains.

Example:

Hugh, a resident of Alberta, pays his tax by instalments. He decides to have more tax withheld from his income in 2018. His net tax owing has been $3,500 for several years, and he expects it will stay the same in 2018. In January 2018, Hugh gave his pension plan administrator a filled-out Form TD1 that stated he wants an extra $250 withheld each month from his pension income.

Hugh now estimates his net tax owing will be $500 for 2018. Based on his estimate, he does not have to make instalment payments in 2018 because his net tax owing will not be over $3,000 for 2018. Hugh would disregard the instalment reminders he gets for 2018.

It can be easy to calculate installments, as CRA does it for you for the most part. If you feel your income will be much different than the prior year, either up or down, then adjust your installments accordingly. Just remember that if CRA does send you a reminder, then you must make those payments, especially if your tax situation doesn’t change from last year.

Do You Have to Make Income Tax Installments?

By Randall Orser | Business Income Taxes

There comes a time in many taxpayers lives where you end up owing too much to the taxman and have to make installments. Or, you’re now self-employed and no tax is taken off your earnings. The taxman likes his cut and doesn’t want to wait for it either. If your amount owing come April 30this more than $3,000 then you must make installments; except Quebec which is $1,800. And, now Canada Revenue Agency (CRA) is penalizing, plus interest, you when you don’t.

Generally, your net tax owing is the amount you owe on your income tax and benefit return. You have to pay your income tax by instalments for 2018 if bothof the following apply:

your net tax owing for 2018 will be above the thresholdfor your province or territory ($1,800 or $3,000)

your net tax owing in either2017 or2016 was above the threshold for your province or territory

You do nothave to pay your income tax by instalments for 2018 if your net tax owing for 2018 will be $3,000 or less ($1,800 or less for residents of Quebec), even if you received an instalment reminder in 2018. If you received an instalment reminder that shows an amount to pay, you may have to pay your income tax by instalments.

What is an instalment reminder?

An instalment reminder is sent to help you determine if you have to pay income tax by instalments. The reminder will suggest an amount to pay and list the calculation options. There are three: no-calculation option, prior-year option, and current-year option.

No-calculation option

This option is best for you if your income, deductions, and credits stay about the same from year to year. CRA will provide the no-calculation option amount on the instalment reminders that they will send you. CRA determines the amount of your instalment payments based on the information in your income tax and benefit return for the two previous taxation years.

Prior-year option

This option is best for you if your 2018 income, deductions, and credits will be similar to your 2017 amount but significantly different from those in 2016. You determine the amount of your instalment payments based on the information from your income tax and benefit return for the 2017 tax year. 

If you use the prior-year option and make the payments in full by their 2018 due dates, CRA will not charge instalment interest or a penalty unlessthe total instalment amount due you have calculated is too low. 

Current-year option

This option is best for you if your 2018 income, deductions, and credits will be significantly different from those in 2017 and 2016. You determine the amount of your instalment payments based on your estimated current-year (2018) net tax owing, any CPP contributions payable, and any voluntary EI premiums. 

If you use the current-year option and make the payments in full by their 2018 due dates, CRA will not charge instalment interest or a penalty unlessthe amounts you estimated when calculating your total instalment amount due were too low. 

The CRA sends instalment reminders to people who mayhave to pay tax by instalments:

The February reminder is for the March and June payments

The August reminder is for the September and December payments

  • No-calculation option– Pay the amount shown in box 2 of your reminder for September 15 and December 15.
  • Prior-year option – Calculate your 2017 net tax owingand add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.
  • Current-year option– Estimate your current-year 2018 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.

If you received an instalment reminder and you were required to pay instalments but did not comply, you may have interest and penalty charges. I won’t get into that here, but it can be hefty depending on what your instalments should have been and what you actually paid.

 

Getting Your Tax Records Ready for Your Accountant

By Randall Orser | Business Income Taxes

What Your Tax Accountant Needs to Prepare Your Income Tax

When it comes to income tax preparation, there are do-it-yourselfers and those who have their income tax prepared by professionals.

For many businesses, having a professional such as a tax accountant prepare their income tax returns is the most sensible option. We don’t all have time to become income tax experts and income tax mistakes can be costly. So why not hire an expert to get the job done right and cut down on tax time anxiety?

To do the job right, though, your tax accountant or other income tax preparer will need to have all the right tax records at hand – preferably organized. Use this checklist to get your records together for your tax accountant.

Business Records Your Accountant Needs

    • Revenue and business expenses for the year

    • Business use of auto

    • Auto operating expenses

    • Vehicle driving log with business kilometres driven

    • Asset additions

    • Business use-of-home details

Your tax accountant will also need any tax records such as:

    • Last year’s Notice of Assessment

    • Amounts paid by installments

    • A copy of your income tax return filed last year (if you’re a new client)

Other records your tax accountant will need will depend on whether you’re asking him or her to prepare a T2 (corporate) or T1 (personal) income tax return.

If the latter, your tax accountant will need all the relevant information slips and tax-related documents. Here are some of the most common:

    • T4 slips (if you have employment/business income)

    • T4A commissions & self-employed

    • T5013 Partnership Income

    • T3 Income from Trusts

    • T5 Investment Income

    • RRSP contribution slips

    • Charitable donations

    • Medical and dental receipts

    • Child care information

Save Money on Your Tax Accountant’s Fee

Accountants generally charge by the hour, so the harder you make their job, the more it will cost you.

Summarize and tally records wherever possible. Cheques, invoices, business expenses - all should be categorized and totaled. Sort all your information slips by type. Having your tax accountant do the organizing and tallying is the expensive way to go.

If you have several businesses, remember that you will have to have separate revenue and business expenses figures for each business, as business income has to be listed by individual business on the T1 form.

Be as organized as you possibly can. For example, clip groups of receipts together by type and put a post-it-note stating what the category is on the top. The less your accountant has to figure out, the less time she’ll be spending on your file.

And remember, having a tax professional prepare your income tax return(s) isn’t costing you as much as you think when you see the bill – it’s a legitimate business expense!

The Challenges and Joys of Working for Yourself – Tax Tips for Freelancers

By Randall Orser | Business Income Taxes

Working for yourself can be extremely rewarding in terms of both time and money. When you work as a freelancer, you have the freedom to pick and choose the projects you work on. You also have the ability to set your own hours and work around your schedule instead of relying on a rigid schedule set by a supervisor.

Of course there are a number of challenges involved in the freelance lifestyle as well, including uneven workflow, the difficulty of landing new projects and of course higher taxes. Those who work for themselves face a higher tax burden, and that means that freelancers need to make tax planning an integral part of their lives.

No Withholding – No Automatic Payments

One of the most difficult adjustments for new freelancers is moving from automatic tax withholding to a system where they must compute their own taxes and make the appropriate payments. When you work for someone else, your boss automatically computes how much you owe in taxes and withholds that amount from your paycheck. Since you never see that money, you may not even look upon it as part of your income, making taxes a relatively painless part of life.

Things are a lot different when you work for yourself. When you work as a freelancer, there are no taxes withheld from your payments, but that does not mean there are no taxes due. It just means you are now responsible for assessing how much you owe and making sure Canada Revenue Agency (CRA) gets their money on time.

Quarterly Payments

If you are successful in your freelance career, chances are you will need to make quarterly payments to the CRA. The CRA typically expects freelancers to make quarterly estimated payments if they expect to owe more than $3,000 at the end of the year. With taxes on the self-employed so high, it does not take a lot of income to reach that $3,000 threshold.

If you are new to freelancing, one of the first things you should do is run the numbers to determine whether or not you are subject to the quarterly payment requirement. If you are, you will need to use your best guess when determining what you expect your total annual freelance income to be. If you use tax software to prepare your return, that software will automatically prepare the payment vouchers for you. Otherwise, you can simply request those forms from the CRA website.

Saving Money on Your Taxes

One of the biggest challenges of working as a freelancer is Canada Pension Plan (CPP) contribution. This special tax is applicable only to those who are self-employed, and it consists of the combined employee and employer share of the tax that fund the CPP. When you are self-employed, you are considered both the employee and the employer, and that essentially doubles those two taxes.

That higher tax burden makes it even more important to plan ahead by setting aside a percentage of each client payment to cover the cost of taxes. Setting that money aside now is the best way to ensure it will be there when you need it. You can earn a bit of interest by stashing those funds in a high-yield savings account, but you cannot afford to take any risk with the money.

Health Savings Accounts

Finding affordable health insurance is a challenge faced by every freelancer, but there are some ways to make purchasing the coverage you need less of a burden. One strategy is to combine a high deductible health plan with a health savings account. High deductible plans are usually much less costly than traditional plans, and that can help you save a lot of money.

Opening a health savings account can save you even more, since you can deduct the amount you set aside from your taxable income. You do need to make sure the health plan you have is HSA-eligible, something your insurance agent can tell you. You can also write off the cost of your health insurance premiums, provided you are not eligible for coverage under a group plan.

Open a Retirement Plan

When you work as a freelancer, you are also responsible for funding your own retirement. Fortunately, the CRA has ways to make saving for retirement less costly and more effective. Freelancers can choose from a number of retirement plans, including the Tax Free Savings Account (TFSA) and the individual Registered Retirement Savings Plan (RRSP). Each of these plans has its pros and cons, but they can all save you substantial money on your taxes.

It is a good idea to start checking into the various retirement plans as early in the year as possible. Planning early gives you time to choose the right plan, and time to put money aside here and there. If you already have an account with a brokerage firm or mutual fund company, that organization can help you set up a retirement plan specific to your freelancing business.

No matter how much or how little you make from your freelance work, it is important to factor taxes into the equation. Taxes can have a huge impact on your earnings, and no self-employed individual can afford to ignore that effect.

Seven Tips to Make Tax Time Less Stressful

By Randall Orser | Business Income Taxes

If you took the time to make a list of all the tasks you need to do to manage your business and then ordered them in terms of how much you liked doing them, where would record management come in? Two hundred and seventy? Or even lower?

But while most of us definitely consider business record management to be scut work and tend to give it a low priority, good record management not only makes our working lives easier, but can give us real stress relief at tax time. Here’s what you can do to make record management easy:

1. Keep your business and personal expenses separate.

Sounds easy, doesn’t it? But this is the part of record management that trips up most people. If you take a potential client out for a round of golf, for instance, is that a personal expense or a business expense? (The answer is personal, because green fees are not a deductible business expense.) Vehicles that you use for both personal and business reasons are another perennial problem.

You need to know what qualifies as legitimate business expenses and what doesn’t, and be sure that your business record management reflects this accurately.

2. Get sufficient documentation for all business expenses.

Many business people make the mistake of thinking that “lists” are good enough for record management purposes. For instance, they have a list of purchases on their credit card statements, and think that that’s good enough in terms of claiming those purchases as business expenses.

Unfortunately, the CRA (Canada Revenue Agency) is more demanding. They do not accept credit card statements or cancelled cheques as sufficient documentation for expenses when an invoice or receipt would normally be issued.

In terms of good business record management, there are two points to bear in mind:

a) Always get a receipt. Get in the habit of asking for a receipt whenever you make a purchase – no matter how small. Little expenses add up, too, and you need the documentation for your business records.

b) Label your receipts, if necessary. There are still businesses around that hand out receipts that don’t have anything on them except the date the item was purchased and how much it cost – which isn’t very helpful when you’re staring at a receipt trying to figure out what the item in question was and which business expense category it fits into.

When you get a receipt, look at it and write the missing/relevant information on it, such as what the receipt is for and the expense category.

3. Get a separate bank account for your business – and use it.

While the fees for business bank accounts are notoriously high compared to personal accounts, a business bank account is absolutely necessary for good business record management. A business bank account helps you keep your business and personal expenses separate. You will deposit all your business revenues into the business account, and withdraw any business related expenses or payments from the business account only.

What kind of business bank account should you get? A chequing account – preferably one that delivers monthly statements and returns your cancelled cheques to you.

Business cheques help make your record management easy because you can use the memo line on the front of each cheque to document the business purpose of the expense.

4. Have and use a separate credit card for business expenses.

Using your personal credit cards for business purposes will swiftly drop you into a record management quagmire. A business credit card greatly simplifies your business record management by helping keep your personal and business expenses separate. (It also helps make your business look more professional.)

5. Keep a mileage log of your business travel.

If you use any of your vehicles for business purposes, a mileage log will be a big help in record management. Note the mileage (or kilometer) reading on the odometer at the beginning of the year and then enter the mileage by date each time you use the vehicle for a business purpose.

Keeping your mileage log in the glove box of your vehicle will make this easy. If you have more than one vehicle that you use for business purposes, keep a mileage log in each.

6. Keep all your business records for a particular tax year together and in one place.

Having your business records scattered all over the place is a real time-waster when it comes to accounting or preparing your taxes, and organizing your business record management system by fiscal year will make it much easier to find the business records you need when you need them.

7. Keep your business records for the correct length of time.

For some reason, there seems to be a lot of confusion about how long you have to keep your business records. For tax purposes, “if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate” (CRA).

This six-year period of time starts from the last time you used the business records, not from the time the transaction occurred.

The CRA also has rules about the destruction of business records; see Canada Revenue Agency’s website (www.cra-arc.gc.ca) for details.

These seven things you can do to make your record management easy aren’t difficult. Like a lot of the administrative business related to running a business, they just require establishing good habits and persistence. But if you apply these rules of good record management now and follow through, you’ll see a huge difference next tax time and your accounting will be easier all year long.

Get Your Receipts Together Now for Taxes

By Randall Orser | Business Income Taxes

Many shoppers in Canada quickly decline the offer of a receipt when a store clerk asks them. You won’t ever catch a small business owner doing this. It’s not that they like drowning in thousands of little slips of paper; instead, they just know that without every receipt they can get their hands on, their tax return could get out of hand. What businesses need, then, is a way of cataloging and organizing receipts to present to the Canada Revenue Agency (CRA).

The CRA has very strict rules about businesses providing proof of their expenses. They also offer lenient treatment in these matters sometimes. For instance, CRA may let businesses get away by merely showing detailed accounting and other records as proof that they have spent the money they claim and may only look at certain items. In an audit, the auditor usually has a dollar figure he wants to look at and skips over anything under that amount. Sometimes, the CRA will accept these defenses for a lack of receipts. At other times, they will have none of it. It is safest to keep receipts for everything. Two items where this is never the case is automobile and meals.

There are two parts to providing the CRA with the proof required – getting all the receipts from all the vendors you deal with and then organizing them to present to the CRA as proof. Getting the receipts is easy enough – you only have to resolve to ask for them. Organizing receipts in a manageable and presentable way, though, is the other. These tips below help you keep your records well-sorted.

To organize receipts in proper form, you need to first know what each receipt is for. When you have a load of receipts at the end of the year, it can be hard to know which proves what. Each time you get a receipt, then, you need to make notes on it for what it is for. You may not be able to use the receipt otherwise.

It can be difficult to keep hundreds of little slips of paper organized for years. The CRA can come back long after a tax year is done and ask for additional proof for something. This is what receipt scanners are there for. The CRA accepts scans in place of original receipts. Make sure that you keep a couple of backups of your scans, though. If you don’t, you could be sunk if you lose your hard drive for some reason. Taking pictures on your smartphone camera could be a great alternative, too. There are dozens of apps that help you organize your receipts.

It is hard to overestimate how confusing hundreds of receipts can be when you need to find a specific one for a specific expense. If you have the misfortune to be in a tax audit, you can find that merely having an organized set of receipts is not enough. The CRA auditor may ask for additional corroboration – in the form of a business calendar. If you are deducting travel expenses, for instance, the auditor may want to look at your business calendar to see if you actually have travel plans jotted down in there. Maintaining a detailed Outlook calendar could be a great idea.

Final tips

It is important to keep all your bank and credit card statements. These aren’t good enough to take the place of actual receipts, though. These statements typically use short descriptions for each expense. An expense line may say that you’ve spent $700 at Amazon – it won’t say that you bought business software with that money. As far as the CRA is concerned, you could have bought $700 worth of Silly String cans. You need to keep your receipts as well as your credit card statements.

Finally, whatever happens, always pay with checks or plastic. Cash expenses do come with receipts; they don’t have additional corroboration in the form of bank or credit card statements, though. As far as the CRA is concerned, there is no such thing as too much proof.

You’re much better off trying to ensure you have all your receipts for your business expense, and for those personal expenses you can deduct such as donations and medical expenses, now rather than waiting until April (June for small business); in which case, you may end up filing late.

The CRA is happy to give you thousands of dollars off your tax bill. The only thing they ask in return is solid corroboration for each expense you deduct. Collecting and organizing receipts, though, proves to be a tall order for many small businesses. These tips that follow show you where many businesses make mistakes and what you can do to keep your tax return safe. Or better yet, hire Number Crunchers® and get this headache off your shoulders.

Have You Made Donations Yet This Year? 

By Randall Orser | Business Income Taxes

As we’re nearing the end of 2017, it’s a good time to look at your potential deductions for the tax year. Whether you’re someone who donates throughout the year, or just in one lump sum. It’s a good idea to see how much you’ve donated so far, this year, and should you top it up.  You may also be doing a bit of cleaning out this fall and getting rid of things, so may be a good time to think about donating something in kind to your favourite charity. Now is definitely the time to look at what you can contribute to make the most of your tax deduction.

Your donations can consist of monies or gifts to registered charities, and political parties, too. You can look up on Canada Revenue Agency (CRA)’s website to see if the charity you wish to donate to is registered on the Charities Listing page. Ensure the charity is registered here before you give any of your money; this includes charities of foreign countries. Qualified donees are:

  • registered charities;
  • registered Canadian amateur athletic associations;
  • registered national arts service organizations;
  • registered housing corporations resident in Canada set up only to provide low-cost housing for the aged;
  • registered municipalities in Canada;
  • registered municipal or public bodies performing a function of government in Canada;
  • the United Nations and its agencies;
  • registered universities outside Canada that are prescribed to be universities the student body of which ordinarily includes students from Canada;
  • Her Majesty in Right of Canada, a province, or a territory; and
  • before June 23, 2015, registered foreign charitable organizations to which Her Majesty in Right of Canada has made a gift. For gifts made on or after June 23, 2015, registered foreign charities (which now include foreign charitable foundations) to which Her Majesty in Right of Canada has made a gift.

What is the eligible amount of my gift?

In most cases, the eligible amount of your gift is the amount shown on your charitable donation receipt.

However, in more technical terms, the eligible amount of the gift is the amount by which the fair market value of the gifted property exceeds the amount of an advantage, if any, received or receivable for the gift.

The advantage is generally the total value of any property, service, compensation, use or any other benefit that you are entitled to as partial consideration for, or in gratitude for, the gift. The advantage may be contingent or receivable in the future, either to you or a person or partnership not dealing at arm's length with you.

Look at all the donations you have given this year, do they add up to $200 or more? If not, you want to top that up to over $200 as you get a bigger credit for the amounts over $200. Currently, you get 15% tax credit on donations up to $200, and 29% on any amounts over that. For example, you give $750 to charity, you get $30 on the first $200 and $159.50 on the rest for a total of $189.50.

Generally, you can claim on line 340, all or part of these donations, up to a limit of 75% of your net income (line 236). As an exception, gifts of capital property are limited to 100% of your net income. Also, for the year a person dies and the year before, the 75% limit is extended to 100% of the person's net income.

Of course, as always, keep your copies in case CRA asks for them; usually, if you donate quite a bit of your income they’ll check.

First-time donor’s super credit

The First-time donor's super credit (FDSC) supplements the value of the charitable donations tax credit (CDTC) by 25% on donations made after March 20, 2013, by a first-time donor.

For the purpose of the FDSC, you will be considered a first-time donor if neither you nor your spouse or common-law partner (if you have one) have claimed and been allowed a charitable donations tax credit for any year after 2007.

The FDSC applies to a gift of money made after March 20, 2013, up to a maximum of $1,000, in respect of only one taxation year from 2013 to 2017.

If you have a spouse or common-law partner, you can share the claim for the FDSC, but the total combined donations claimed cannot be more than $1,000.

Example

An eligible first-time donor claims $700 of charitable donations in 2016, of which $300 are donations of money. The charitable donations tax credit (CDTC) and the first-time donor's super credit (FDSC) would be calculated as follows:

  • On the first $200 of charitable donations claimed, the CDTC is ($200 x 15%) = $30.
  • On the donations claimed in excess of $200, the CDTC is [($700 − $200) x 29%] = $145.
  • On the donations that are gifts of money, the FDSC is ($300 x 25%) = $75.
  • The total of the CDTC and FDSC is $250.

You do not have to claim all of the donations you made this year on your current year return. It may be more beneficial to carry them forward and claim them on your return for any of the next five years, or over the next ten years for a gift of ecologically sensitive land made after February 10, 2014.

Donating to charity is a worthwhile effort as you are able to help people, feel good about yourself, and get a tax deduction. As with anything in life, it’s a good idea to plan, and track what you’re donating for the year, so as to maximize your tax benefit the most. Check here for some samples of official donation receipts.


Why You Need to Think About CRA’s Online Services? 

By Randall Orser | Business Income Taxes , Personal Income Tax

Canada Revenue Agency (CRA) has joined the 21st Century when it comes to giving you access to your tax information online. You can get your notices of assessment, RRSP contribution limit, and more via their My Account and Online Mail, and they even have an app called MyCRA. These allow easy access, and faster access than snail mail, to your tax information that CRA has for you.

Before we get into why you should use these services, let’s give a quick overview.

My Account

My Account allows you to track your refund, view or change your return, check your benefit and credit payments, view your RRSP limit, set up direct deposit, receive online mail, and so much more. My Account is a secure portal. This is for your personal taxes, and not for business accounts, such as GST/HST.

My Business Account

My Business Account is a secure online portal that provides an opportunity to interact electronically with Canada Revenue Agency (CRA) on various business accounts. Business accounts include GST/HST (except for GST/HST accounts administered by Revenu Québec), payroll, corporation income taxes, excise taxes, excise duties, and more.

Online Mail

Online mail is a simple to use service that allows individuals to receive most of their mail, like their notice of assessment or benefit notices, from the Canada Revenue Agency (CRA) directly in My Account.

MyCRA App

MyCRA is a mobile app for individual taxpayers where you can securely view and update key portions of your tax and personal information.

For step-by-step instructions on setting up your CRA user ID and password, go to Registration process to access the CRA login services.

All of the above are:

  • Convenient – It is available 21 hours a day, 7 days a week.
  • Easy to use – After registering, simply log in with your CRA user ID and password.
  • Fast – Information is up-to-the-minute and transactions are processed immediately.
  • Secure – The CRA user ID and password are just part of the security.

It is possible to see information in My Account before you receive the official document from the CRA. For example, if the CRA reassessed your return, you will see details of the reassessment in My Account before you receive your notice of reassessment in the mail. This is because the most up-to-date information is displayed immediately in My Account, while the notice goes through several manual processes before you receive it by mail.

Correspondence that you can receive electronically

Some examples of correspondence currently available through online services include:

  • notices of assessment (NOA)
  • notices of reassessment (NORA)
  • benefit notices and slips
  • T1 adjustment notices
  • instalment reminders and payments made
  • income tax and benefit return status
  • tax-free savings account and registered retirement savings plan contribution limits
  • buy-back amounts for the Home Buyers’ Plan and the Lifelong Learning Plan
  • GST/HST return status
  • Account balances
  • And more…

The above are just some of the services that are currently available, and CRA is looking at adding more all the time. CRA finally wants you to be able to access this information electronically rather than get it in the mail.

Let’s face it mail theft is on the rise and will continue to do so as long as we have those community mailboxes; those mailboxes are not secured in any fashion. Online services allow you to have access to your tax information at any time, and you can authorize others to access it on your behalf, such as your tax preparer. This allows them access to your notices of assessment, T-slips, etc., allowing you to relax as to whether or not you got them. It also allows you to check to see if you didn’t get a T4, or other slip before you do your taxes.

I’m am going to suggest to all my clients this year to sign up for My Account, Online Mail and MyCRA App, it’s just the right thing to do.