Guidelines For Deducting Conference and Training Expenses

Attending conferences and investing in ongoing training can be a great way for small business owners to keep current on industry developments and improve their skills.  It also allows for networking opportunities and occasionally includes trips to exotic locations (and Las Vegas), which can be a nice break.  The best part is that the cost of both the events and travel are deductible against your business income, subject to specific guidelines discussed below.

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Tax Tips: Car Expenses and Benefits

Access to a car can be crucial to running a small business effectively.  Costs of ownership, however, can be onerous, especially in the early stages when your business is not hugely profitable.  Luckily, Revenue Canada allows individuals and corporations who use their cars to generate income to deduct the expenses and actually provides fairly comprehensive (i.e. complex) guidance to this end.  Below are some of the main provisions that impact small business owners:
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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 significant reduction in your tax bill for costs that you would incur regardless, giving you one more reason to love 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.
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Invest in RRSPs or Repay your Mortgage?

One of the most common questions asked by Canadian taxpayers is whether they should use their excess disposable income to invest in RRSPs or pay down their mortgage.  Since contributions to an RRSP are made on a tax free basis,  reduction in taxes payable can be substantial.  Conversely,  higher mortgage payments can result in significantly lower interest expense.  As such, there several factors to consider when deciding which option is better:
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Last Minute Guidance and Information for Tax Filers

Accountants and tax preparers all over Canada are waiting with bated breath for the end of April and dreaded busy season, when sleep will no longer be a luxury and dreams cease to be tax reconciliation exercises.  At this point in the month, most tax filers have submitted their info and efiled (or mailed in) their tax returns.  Of course, there are always a few stragglers (accountants among them) who have either have not had the time to prepare their tax files or simply tend towards the easy yet stressful path of procrastination. For those that are in the straggler category, below is some guidance to help facilitate the process:
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10 Year End Tax Strategies to help Small Business Owners Improve their Bottom Line

Ready or not, the holiday season is upon us and the end of the year is fast approaching.  While it is quite a nice time of year (cold weather notwithstanding) there are many additional stresses –purchasing the perfect Christmas sweater, managing the logistics of family holiday time, making travel arrangements, all while trying to not to gain a million pounds.  This can be especially trying for the small business owner, who in addition to managing their business and the holidays, must carve out some time to ensure that there are ready for year end and maximizing their tax deductions while also planning for next year.  To help ease the stress I have compiled a list of tax tips to contemplate:
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10 Corporate Income Tax Facts for Small Businesses

There are essentially two types of tax returns for small businesses and the self employed.  If you are an unincorporated sole proprietor or a partnership, you are required to fill out the statement of business activities (T2125) on your personal tax return also referred to as the T1.  If you are incorporated, then you are required to complete a corporate income tax return referred to as a T2.  (The corporate tax return is in addition to the personal tax return).  Although the accounting for unincorporated and incorporated entities is almost the same, except with respect to the equity sections, preparing the T2 is more complex and is generally best outsourced to a qualified accountant.  Regardless, it is good to have an understanding of some of the important considerations when preparing a corporate income tax return.
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How to Handle a Tax Assessment

Tax assessments are often difficult to understand (surprisingly the explanations can be insufficient and/or confusing). If you had an accountant file your tax return, it is a good idea to consult them upon receipt of an assessment. If you filed it yourself, and do not understand the assessment, you should call the government agency. They are usually eager to help, if not always illuminating. If you still do not understand it, it is probably best to then contact an accountant.

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Quebec Parental Benefits for Self Employed Workers

Parental benefits in Canada are administered by Service Canada.  They fall under the EI program, and to receive benefits it requires opt in to the EI plan for self employed individuals. However, in Quebec, unlike the rest of Canada (a common theme with Quebec), parental benefits are administered by the Quebec Parental Insurance Plan (QPIP), which does not specifically require opt in.  Instead all workers in Quebec whether self employed or employees are required to pay premiums, based (similar to QPP) on their insurable earnings.  For the self employed, premiums are payable at a rate of 0.86% upto maximum insurable earnings of $62,000. 

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Tax Planning for Business Professionals: Dividends or RRSPs?

This article in the globe and mail discusses a novel tax strategy.  If you are an incorporated business professional - a lawyer, accountant or consultant -  it might be more benefical from a tax perspective to retain excess funds that would normally be transferred to an RRSP, in the corporation. The business owner would withdraw funds in the form dividends instead of a salary.  (It is necessary to have earned income eg. a salary to build RRSP contribution room.  Dividends are not considered to be earned income.) This strategy results in the following tax savings:
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Tax Tip: Write Off 100% of Computer Hardware

Small Business owners should note that for electronic data processing equipment i.e. computer hardware and related software acquired between January 27, 2009 and January 31, 2011, the entire amount of the purchase can be deducted against income.  This is a significant incentive for business owners to purchase computer equipment before February, 2011.  The accelerated depreciation rate is 100%.  and there is no half year rule.  The usual CCA rate for computer hardware, which is subject to the half year rule (i..e 15% in the first year) is 30%.   To qualify the hardware must be:

  • situated in Canada
  • new equipment
  • used by a business that is conducted in Canada

The applicable CCA Class to select when preparing your tax return is 52.

More information can be found at the CRA website Classes of depreciable property:

Related: Accounting and tax implications of fixed assets 

About the author: Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals.  Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest.  You can also follow her on Facebook or Twitter.

Noteworthy - Sept 19.2010: All About Tax

CRA Targets Tax Shelters:

The CRA is auditing "gifting tax shelters" ,which mainly target middle income earners.  It seems that the tax shelters have been falsifying charitable donation amounts eg. a donation of $30 will turn into a donation receipt of $100 resulting in a tax credit up to $45.   It is estimated that 170,000 taxpayers will be assessed for about $2.5 Billion.

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Small Business Jobs and Credit Bill: Key Provisions

The US senate passed the Small Business Jobs and Credit Act, introduced on May 13, 2010, by a vote of 62 to 38.  The vote included the support of two republicans - George Voinovich of Ohio and George LeMieux of Florida.  The bill will go back to the House of Representatives where democrats are hoping it will be approved without delay.  Some of the key provisions of the bill are as follows:

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Noteworthy:August 24.2010 - R&D Credits, 9 Phrases to Make Customers Happy, Incorporate to Protect your Small Business

  • R&D Credits for Small Business

Any business that carries out activities relating to development of a new product or process may be eligible for R&D Credits, up to 35%, on qualifying costs including wages, material costs, equipment and overhead.

  • 9 Phrases that Make Customers Happy

"I appreciate your business" and "I can solve your problem" are among phrases that please customers

  • Mistake not to Incorporate?

Protection against personal liability is a primary reason to for small businesses to incorporate. 

If you are unable to pay, the landlord could garner your wages, attach your bank account, put a lien on you house, or employ many other methods that would both make you life miserable and damage your personal credit

Tax Tips: Employment Insurance for Self Employed Individuals

In January, 2010 the Federal Government extended  Employment Insurance benefits to self employed individuals/small business owners.  The following represents some of the key details:
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