Make Your Taxes Easier with this Detailed Checklist
The deadline to file tax returns is quickly approaching, resulting in various degrees anxiety for some taxpayers and accountants. The good news is that the stress can be managed fairly easily with some simple organization techniques. The most effective starting point is to evaluate your tax situation and prepare a checklist of the documentation that you will need with respect to your specific tax situation. A checklist can help to ensure that important items are not overlooked in the rush to put everything together (and, of course, its always satisfying to cross something off the list).
Guidance on Deducting Home Office Expenses
One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to work. This can result in a reduction in your tax bill for costs that you would incur regardless, which is certainly an incentive to being your own boss.
Criteria for Deductibility:
For home office expenses to be deductible, they have to meet the following criteria:
It has to be your principal place of business i.e. you cannot deduct home office expenses if you have another office that relates to your business, elsewhere, even if you work 22 hours a day or you check your blackberry in bed.
The space designated as your home office is used to earn business income and/or you meet clients or customers on a regular basis. You can deduct expenses relating to the workspace in your garage which is used for home improvement projects.
Frequently Asked Questions About GST/HST By Business Owners
For those of you who are starting a new business, it is essential to know your tax obligations. Every business owner must report their net profits on a either their personal tax return if they are unincorporated or a corporation tax return if they are incorporated.
In addition to income tax, it is essential to consider whether or not you should register and collect GST/HST and provincial sales taxes. There are a variety of questions around this topic:
How to File T4s using Quickbooks Desktop
For all Canadian businesses that have employees on their payroll, the deadline to file your T4s is February 28th, The good news is that it has become much easier to prepare and submit the T4s particularly if you are submitting them electronically.. The Canada Revenue Agency (CRA) is encouraging businesses to file the T4s electronically and it should be noted that e-filing is mandatory for employers with more than 50 employees.
How to Pay Dividends: Completing the T5 Slip and Summary
If you are the owner of a Canadian corporation, you can choose to pay yourself (and other shareholders) dividends instead of a salary. Alternatively, some shareholders also take dividends in addition to a salary depending on their tax planning strategy. If you do decide to pay yourself dividends, it is important to ensure that you prepare the proper documentation for Revenue Canada (CRA) and if you live in Quebec, Revenue Quebec (MRQ) since this must be reported as investment income on your personal tax return in the calendar year in which the dividends are paid. If you are paying dividends to a Canadian shareholder, you must issue a T5 slip while non resident shareholders receive an NR4 slip. The T5 dividend slips are generally due by February 28th of the calendar year following the year in which the dividend was paid Although no income taxes are due at the time of filing the T5 slips with the government, interest and penalties apply for late filing . The process of submitting preparing and submitting the dividend declarations and the documents that need to be filled out and returned to the CRA and MRQ are discussed below:
What Unincorporated Small Business Owners Need to Know about Filing Their Taxes
Being a small business owner comes with challenges, not the least of which is doing your taxes. While most Canadian taxpayers have relatively simple tax returns that can easily be completed using software, small business owners have the additional burden of reporting details relating to their businesses. This can seem onerous, but understanding what needs to be done, and when, can significantly help reduce the stress and ensure that the tax filing process is smooth and straightforward.
One of the types of income on which you pay income taxes is what Revenue Canada (CRA) refers to as “income from self-employment” that is essentially the same as income from a small business. If you do have business income, then you are required to declare your business income on a tax return. As an unincorporated small business owner, this business income is reflected on a separate schedule on your personal tax return. The schedule is called a T2125, which is a “statement of business activities” (discussed below) and at minimum requires that you show any income you earned from a business venture. If you have incurred expenses to earn the business income, you may also deduct these from your gross revenues or sales to arrive at net income from business. Unlike a simple personal tax return with no business income, the information that must be reported on a T2125 is generally not simply provided to you on a tax slip, such as a T4 or T5, but must be compiled and calculated.
Know Your Small Business Tax Deadlines For 2024
As we approach the new year, it will be time soon to start working on everyone’s favourite activity i.e. getting your tax stuff in order :) . Below are the deadlines that all small businesses need to know for 2024.
Download our free Canada unincorporated business tax deadline calendar for 2024 (both Federal and Quebec).
Guidance on Registering for Payroll and Remitting Source Deductions
There comes a time for many small business owners when they decide that they need to hire employees. This is usually an excellent sign as it means a) the business is growing and b) the small business owner has learned to delegate. It also means that additional paperwork needs to be filled out and additional taxes need to be paid. The simplest option when deciding to augment your workforce is to have the new worker invoice the business, based on hours worked or some other formula. Unfortunately, there are very specific rules as to who qualifies as a self employed contractor. Essentially, if your have someone that works full time, has little flexibility with respect to the hours that they work and you provide the tools such as a desk/office, computer etc, then there is a good chance that the tax authorities will classify them as an employee. In this case, where your worker is clearly an employee, you must register for payroll, pay them a salary and submit regular, periodic payroll reports and payments to the Canada Revenue Agency (CRA). As usual, if you live in Quebec, you must submit to Revenue Quebec (MRQ) as well.
Should you register for GST/HST and QST and What it Means to Be Zero Rated
When starting your new Canadian small business or launching into self employment, it is essential to determine whether you are required to register for GST/HST (and QST if you have a started a business in Quebec). The simple answer is that if you anticipate that your annual gross revenues (total sales) are going to exceed $30,000 and your products or services do not qualify as Exempt or Zero rated (explained below) , then you are required to register for GST/HST and collect sales taxes from your Canadian customers and clients. The $30,000 limit applies to the last 4 quarters of revenues. If you decide not to register for sales tax upon the inception of your business/self employment, then you must monitor your sales revenues over a rolling 4 quarter period and register once you are close.
Accounting and Tax Treatment of Computer Hardware and other Fixed Assets
Investment in capital items such as computers, furniture, equipment and cars can cause confusion for small business owners. Since these are purchases that affect the cash flow of the business, it seems that they should be accounted for as expenses similar to office supplies or rent. There are however special rules for any acquisitions that qualify as “fixed assets”. A fixed asset, simply speaking, is an acquisition that provides a long term economic benefit to the business. In other words, any business purchases that has a useful life that extends beyond one year, will usually qualify as a fixed asset. Below I discuss the accounting and tax treatment of fixed assets.
Should You Transition to a Paperless Office (and What CRA Has to Say about It)
Imagine having an office without clutter, free from sad looking boxes and filing cabinets filled to the brim, where you don’t have to rifle through unlabeled containers to find a receipt for a computer that you bought three years ago. . An office where you can make Marie Kondo proud by getting rid of (almost) anything that does not bring you joy and surrounding it instead with items that inspire (or at least improve productivity). This is all possible with a few apps, sufficient digital space and a shift in your mindset and processes.
What is Capital Cost Allowance and How Does it Impact Your Business
Frequently a client of mine will purchase a high ticket item such as a computer or a piece of furniture and will simply show it as an expense on their profit and loss. As far as they are concerned, if you spend money on acquiring something you should be able to write it off against your income. This makes logical sense from a certain point of view. Unfortunately, accountants and revenue agencies do not see it this way. From their perspective, an item that is purchased for a business, whose value extends beyond one year, is actually an asset that should be depreciated over the useful life of the asset. In other words, the expense that you can claim for the asset is only the portion of the asset that is used in the year that you claim it. While there are different accounting methods to reflect depreciation, Revenue Canada requires that you apply a percentage depending on the “class” in the asset is classified and is referred to as capital cost allowance or CCA.
What Types of Advertising/Marketing Expenses Can Small Businesses Deduct?
In the past advertising for small business owners mostly involved ads for print, television or radio (a catchy jingle was always a good way to go), cold calling (rarely a pleasant experience), sending out flyers or courting potential customers at a conference. Unfortunately, these types of advertising were problematic in that it is difficult to gage the direct impact of their effectiveness. Additionally, they were often fairly costly, which can especially difficult for small business owners to afford.
Over the past few years the avenues for advertising have grown exponentially. Many types of advertising don’t even cost anything, except time. You can buy ads on numerous social media outlets that appeal to your target market or if you want to go the free route, you can set up a social media account, post regularly and build an audience. Alternatively, you can set up a website which you can then optimize so that google and other search engines display it when someone is looking for your product or service. Email newsletters are also another effective and direct way of reaching potential buyers. One of the great benefits of these types of advertising is that you are better able to monitor the effectiveness of your chosen strategy.
Know Your Small Business Tax Deadlines For 2023
Somehow we are almost one month into 2023 (!) and it is time for business owners (and individuals) to start thinking about one of their favourite subjects i.e. taxes. I have compiled a list of the deadlines that all of you should know and also updated my annual business tax deadline calendar.
Sign up to download our free Canada unincorporated business tax deadline calendar for 2023 or Quebec unincorporated small business tax deadline calendar 2023.