Category Archives for "Business Income Taxes"

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.

Seven Tips to Save on Your Taxes for Authors

By Randall Orser | Business Income Taxes

Way before tax times approaches, you should be gathering up your business-related expenses. What qualifies as a business-related expense? Here’s some great ones for authors.

Home is where the writing is

Where do you write? Most authors write at home, and have a space reserved for that purpose. Whether you rent or own, if you use a part of your home exclusively and regularly for the business of writing then you may be able to write off expenses that relate to the space.

Round up your gas, hydroelectricity, house insurance, maintenance (house cleaning, landscaping, etc.), mortgage interest, property taxes and city utilities, strata fees, rent. It’s best to review these with your tax advisor, and that you get the right percentage of use. Remember you need to measure the square footage of the room, and determine your home’s total square footage.

Pens and Paper Aplenty

All those office store receipts add up after a while, and you may as well use them. Your office equipment and materials that include desks, cabinets, chairs, lighting, computer and software, printers, ink, paper, pens, and other supplies.

Ding-a-ling May Be Deductible

Your cell phone or landline may be considered a business expense. You should show that the phone is used normally for business. Canada Revenue Agency seems to allow 100% of cell phone bills to be written off (at least your portion, if it’s a family plan). If your business conducts interviews, you can keep a log of the date, length, ad purpose of such calls. Of course, in today’s smartphone era, you probably use the cell to email clients, take notes, draft story outlines, or do research. Your tax advisor can help you figure out the correct deduction amounts for your phone usage, devices, service and repair charges.

Surfing Could Mean Savings

Every household pretty much has the internet these days, and you’re more than likely using it for your business. You’re probably using it for email, website, video conferencing clients, existing and new ones, doing research and fact-checking. These days it’s social media and promoting your business. Many people get their inspiration from the internet. Ideally, if you want to write off your internet service, it should be in the businesses name; you’ll pay more for it, however, CRA likes to see this.

Subscribe Your Way to Savings

Do you belong to professional organizations? How about magazines and other publications, even websites you subscribe to on a monthly basis? Associations would include ones to power up your writing, or learn more on a certain subject you’re writing about, online access to the AP Stylebook, newspapers, and more.

Fly the Friendly Skies to a Tax Write-off

Travel writers aren’t the only ones who can claim travel as a deduction. Any travel that you do may qualify for a deduction, if it gets you somewhere that’s business related. That professional conference, or event you covered, or client you met would all qualify for the travel deduction; remember parking and tolls. As for a car, if it’s a rental car then you just write off that as a travel expense. If it’s your personal car, then you must keep your mileage and all your receipts; unless you’re a corporation, then you can pay yourself per kilometer.

Your Content Creation and Business Expenses Could be Related

The content you create for clients, could lead to deductions for your business. Are you a movie or theatre reviewer? The cost of those tickets would be a write-off. A graphic designer that creates marketing materials for a beauty brand, anything purchased to better understand the user experience could qualify too. Look at the content you created over the past year, and the products or services you purchased to create that content. Your professional tax advisor should be able to give you great advice on what you can and cannot write-off.

If you want to reduce your taxable income, then look at your home office, cell phone, internet plan, dues and subscriptions, travel and the content you create. For a little bit of record keeping, and advice from a tax advisor, you can keep more money, and give less to the government.

Calculating the Home-based Business Tax Deduction

By Randall Orser | Business Income Taxes

If you run a home business, you’ll want to be sure you deduct all the relevant home business expenses on your income tax.

However, although there are income tax deductions that are specific to home businesses, not all home businesses will qualify for these tax deductions. The CRA (Canada Revenue Agency) has stringent conditions that determine whether a home business owner can claim business-use-of-home expenses on line 9945 of the T1 tax form.

Who can claim the home business tax deduction?

You can only claim business-use-of-home expenses if your home is your principal place of business, or you use the work space in your home only to earn your business income and use it regularly to meet with clients, customers or patients. So you can’t claim business-use-of-home expenses if you are conducting business somewhere else as well, or because you sometimes work on business matters at home.

How to claim the home business tax deduction.

If you meet the CRA requirements, you’re ready to calculate your business-use-of-home expenses.

Because you’re doing business where you live, your expenses will be a percentage of your home expenses. It’s easiest to calculate if you have a specific room set aside for business purposes, such as a home office. Then it’s a simple matter to take the area of your work space and divide it by the total area of your house.

For instance, suppose you have a home office that is 10 by 10 feet in a house that’s 1800 square feet. Then your calculation of allowable portion of business-use-of-home expenses would be: 100 divided by 1800 = 5%.

The next step in calculating the home business tax deduction is to apply this percentage to your allowable household expenses. You can deduct a portion of all your house expenses that directly relate to operating your business, such as your utilities, telephone, and cleaning materials. If you own your home, you can claim a portion of your house insurance, property taxes, and mortgage interest (although you can’t claim the mortgage payments themselves.) If you rent your residence, you can claim a portion of the rent you pay.

In the example I’ve just given, let’s say that I own my own home, and all the expenses I’ve just listed total $6800 for the fiscal year. Then 5% (my allowable portion of business-use-of-home expenses) of $6800 (my total home expenses) is $377.78, which is my total business-use-of-home expenses claim on line 9945 of the T1 tax form.

If you operate a part-time business out of your home, you must adjust your business-use-of-home expenses accordingly. For instance, suppose you use part of your home to run a consulting business five days a week. To figure out your business-use-of-home expenses, you would calculate how many hours in the day you use the work space in your home for business purposes, divide that amount by 24 hours, and then multiply the result by the business portion of your total home expenses.

Using the same example used above, and operating the business from 9 a.m. until 5 p.m. five days a week, (7 hours a day), 7/24 hours x 100/1800 square feet x $6800 home expenses = $99.17.

However, in the example, the business is only operated 5 days a week, so I would then reduce the claim accordingly: $99.17 x 5/7 = $70.84.

You can’t deduct an expense from an income you don’t have. In other words, you can’t use the business-use-of-home expenses to create a business loss, so your deduction can’t be more than your net income before you deduct these expenses. If it’s more, you can carry the amount of these expenses forward into the next year.

It may not seem like a lot, but when it comes to income tax, every deduction helps. If you run a home business and meet the CRA’s definition of business-use-of-home, you’ll want to be sure you claim the home business tax deduction on your income tax.

The following are the allowable Home Office Expenses:

Heat (gas)

Electricity (hydro)

Insurance

Maintenance

Mortgage Interest

Property Taxes

Strata Fees

Rent (if not own home)

Internet (if not in the businesses name)

Phone (if you use your home phone to answer business calls or as a fax)

Cable (some industries can get away with this, mostly those in the entertainment areas)

That Great Employee Benefit is Probably Taxable 

By Randall Orser | Business Income Taxes , Small Business

You’ve decided to reward your employees with a benefits plan, maybe a company car, gift cards, and such. Now, before you go and give your employee something, you need to find out if that benefit is considered income to the employee, and, therefore, taxable. Sadly, any kind of benefit you give an employee is considered a taxable benefit, and the employee must be taxed on it, some even are taxable for Canada Pension Plan and Employment Insurance. We’ll talk about what is a benefit and how is it taxable.

Your employee has received a benefit if you pay for or give something that is personal in nature: directly to your employee; or to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling).

A benefit is a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own. A benefit includes an allowance or a reimbursement of an employee’s personal expense.

An allowance is a limited amount decided in advance that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having him or her support the expenses. An allowance can be calculated based on distance or time or on some other basis such as motor vehicle allowance using the distance driven or a meal allowance using the type and number of meals per day.

A reimbursement is an amount you pay to your employee to repay actual expenses he or she incurred while carrying out the duties of employment. The employee must keep proper records to support the expenses and give them to the employer.

Determine if the benefit is taxable

Your first step is to determine whether the benefit you provide to your employee is taxable and should be included in his or her employment income when the benefit is received or enjoyed. Whether the benefit is taxable depends on its type and the reason an employee or officer receives it. To determine if the benefit is taxable, see Chapters 2 to 4 of Guide T4130, Employers’ Guide Taxable Benefits and Allowances.

The benefit may be paid in cash (such as a meal allowance or reimbursement of personal cellular phone charges), or provided in a manner other than cash, such as a parking space or a gift certificate. The way you pay or provide the benefit to your employee will affect the payroll deductions you should withhold.

Types of benefits and allowances

To find out if benefits and allowances are taxable and how they are declared on T4 or T4A slips, see the Benefits and allowances alphabetical index. There are just too many to go through in this blog post.

Calculate the value of the benefit

Once you determine that the benefit is taxable, you need to calculate the value of the specific benefit. The value of a benefit is generally its fair market value (FMV). This is the price that can be obtained in an open market between two individuals dealing at arm's length. The cost to you for the property, good, or service may be used if it reflects the FMV of the item or service. You must be able to support the value if you are asked.

Goods and services tax/harmonized sales tax (GST/HST) and provincial sales tax (PST)

When you calculate the value of the taxable benefit you provide to an employee, you may have to include:

  • the GST/HST payable by you; and
  • the PST that would have been payable if you were not exempt from paying the tax because of the type of employer you are or the nature of the use of the property or service.

Use the “Benefits chart,” here to find out if you should include GST/HST in the value of the benefit. Some benefits have further information about GST/HST in the topic specific section.

The amount of the GST/HST you include in the value of the taxable benefits is calculated on the gross amount of the benefits, before any other taxes and before you subtract any amounts the employee reimbursed you for those benefits.

You do not have to include the GST/HST for:

  • cash remuneration (such as salary, wages, and allowances); or
  • a taxable benefit that is an exempt supply or a zero‑rated supply as defined in the Excise Tax Act.

Policy for non-cash gifts and awards

You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value (FMV) of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee's income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

you can, once every five years, give your employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years' service, and it should be at least five years since you gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit.

If it has not been at least five years since the employee's last long-service or anniversary award, then the award is a taxable benefit. For example, if the 15-year award was given at 17 years of service, and then the next award is given at 20 years of service, the 20-year award will be a taxable benefit, for five years will not have passed since the previous award.

The $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give him or her other non-cash gifts and awards worth $500. In this case, there is no taxable benefit for the employee. If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption for non-cash gifts and awards.

Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the exemption. Examples of items for small or trivial value include: coffee or tea; T-shirts with employer's logos; mugs; plaques or trophies.

Basically, anything you give an employee becomes a taxable benefit. Ensure you chat with your bookkeeping/accountant before deciding on any employee benefits, as more than likely, they are taxable.

Is This Email from CRA a Scam?

By Randall Orser | Business Income Taxes

Since it’s now tax time, the scammers start to ramp up their efforts, and no doubt you’ll get an email claiming to be from Canada Revenue Agency (CRA). Every year the scammers are out, and every year, they get better at what they do.

As a taxpayer, you should be vigilant when you receive a fraudulent communication that claims to be from the Canada Revenue Agency (CRA) requesting personal information such as a social insurance number, credit card number, bank account number, or passport number.

These scams may insist that this personal information is needed so that you can receive a refund or a benefit payment. Cases of fraudulent communication could also involve threatening or coercive language to scare individuals into paying fictitious debt to the CRA. Other communications urge you to visit a fake CRA website where the taxpayer is then asked to verify their identity by entering personal information. These are scams, and taxpayers should never respond to these fraudulent communications or click on any of the links provided.

If you receive an email saying you owe money to the CRA, you can call them or check My Account to be sure. If you have signed up for online mail (available through My Account, My Business Account, and Represent a Client), the CRA will do the following:

  • send a registration confirmation email to the address you provided for online mail service for an individual or a business; and
  • send an email to the address you provided to notify you when new online mail is available to view in the CRA's secure online services portal.

The CRA will not do the following:

  • send email with a link and ask you to divulge personal or financial information;
  • ask for personal information of any kind by email or text message.
  • request payments by prepaid credit cards.
  • give taxpayer information to another person, unless formal authorization is provided by the taxpayer.
  • leave personal information on an answering machine.

Exception: If you call the CRA to request a form or a link for specific information, a CRA agent will forward the information you are requesting to your email during the telephone call. This is the only circumstance in which the CRA will send an email containing links.

Fraud Scenario – E-mail phishing

At 80 years old, Irene is excited to use her new computer to keep in touch with her family. One afternoon, she receives a message that seems to be from the CRA claiming that she is entitled to a significant tax refund. The email includes a link to a website asking for personal information, including address, date of birth, and banking information, so that the money can be direct-deposited into her bank account.

Irene doesn’t remember giving the CRA her new email address and is surprised that the CRA is contacting her. What’s more, she has never qualified for similar tax refunds in the past. However, Irene is still getting used to her computer, and assumes that since the email is addressed from the CRA it must be real. She follows the link and fills out her personal information.

Does this scenario sound familiar? Every year, Canadians lose millions of dollars to email phishing scams that result in identity and financial theft. Beware of emails claiming to be from the CRA. The CRA never requests personal information of any kind from a taxpayer by e-mail. Delete phishing emails and do not click on any links; they can carry harmful viruses that can infect your computer.

When in doubt, ask yourself:

  • Am I expecting additional money from the CRA?
  • Does this sound too good to be true?
  • How did the requester get my email address?

Remember if it sounds too good to be true, it probably is.

You can download this PDF from CRA

Don’t Get Scammed!