5 Income Tax Tips from the Trenches
It is the time of year when many accountants and tax preparers live, breathe, eat and sleep taxes (leaving very little time to write about them!). And while much of it is routine, there are numerous issues that arise, the treatment for which is not immediately apparent and can actually be quite interesting (perhaps more so to a tax nerd), some of which are compiled below:
Want to Simplify Your Small Business/Self Employed Taxes?
📝 Stay Organized
Get your free Small Business Tax Return Checklist to help you gather everything you need and avoid missing key deductions.
📘 Learn the Essentials
Check out my book Small Business Tax Facts for clear, practical guidance on Canadian small business taxes written specifically for self-employed individuals and sole proprietors.
🎥 Book a Consultation
If you have questions about tax and would like personalized guidance relating to your situation, I’m happy to help. Learn More.
Income from a part time or hobby business
I frequently get calls from small business owners who have not declared income from “hobby or part time businesses”. Note that any income earned during the year regardless of the type of enterprise, must be reported. Reasonable and relevant expenses should of course be deducted and if you are in the startup phase of your business, you might actually have a net loss, which unincorporated business owners can offset against other sources of income.
There is also some confusion about being a small supplier, who earns less than $30k, which specifically relates to a small business owner’s obligation to register for GST-HST-QST and is completely distinct from income taxes.
Foreign Property Reporting – Form T1135
If you own foreign property with a total cost of more than $100,000 CAD at any time during the year—including foreign bank accounts, stocks/debt held outside Canada, or real estate (excluding personal use such as a vacation property that does not generate rental income) you may be required to file Form T1135 (Foreign Income Verification Statement). This form must be filed separately from your tax return and by the same deadline. Failing to file it on time can result in significant penalties, so it’s important to review your holdings carefully each year.
Revenue Canada has been vigilantly targeting individuals who don’t report specified foreign property exceeding $100k .
Even individuals who have reported their foreign property have been subject to fines of up to $2,500 if their returns are not filed on time.
Full list of included and excluded property and other CRA frequently asked questions about the T1135
Child Care Expenses
Parents can receive tax relief through both government benefit payments and deductible child care expenses. Eligible expenses include fees paid for daycare, nursery schools, day camps, boarding schools, and overnight camps, among others.
It should be noted that payments to babysitters such as a nanny, or even the taxpayer’s sibling or grandparent may qualify as deductible child care expenses, provided they’re not the child’s parent and a receipt is issued.
In Quebec:
There’s a generous refundable tax credit for child care expenses of up to 60%, depending on family income. For 2024:
The maximum eligible amount is $9,000 per child born after 2006
$4,000 per child born after 1996
Important Federal Rule:
The federal child care deduction must be claimed by the lower-income spouse, and only up to two-thirds (2/3) of their earned income. This means that if one spouse has no income, you will not be able to claim the deduction, with some exceptions.
Moving Expenses
If you moved during the year, and your new residence is at least 40kms closer to your place of employment, you are entitled to deduct moving expenses. This applies to regular moving costs (amounts paid to movers etc.) and also includes incidental costs eg. Amounts incurred to sell your house including broker fees and mortgage penalties.
Although the deduction is limited to the amount that you earned from your employment from the date of the move onwards, it can be carried forward to the following year.
Filing your tax return even if you don’t have any income
While taxpayers who have not earned any income during the year (and do not have any other taxable transactions like disposition of property etc.) are not required to file income tax returns, you should still file an income tax return. The filing of the tax return allows you to receive the GST/HST credit and child tax benefits.
In Quebec taxpayers are also entitled to the solidarity tax credit (as long as they sign up for direct deposit) which can exceed an annual amount of $1,000 for each spouse if you rent or own your dwelling.
Finally, students should be reporting tuition fees paid and student loan interest as this can be carried forward and applied to future year’s income (which can be very welcome, particularly when you are first starting out and are slightly shocked at the size of your paycheque.)
The tax codes (federal and Quebec) allow for a myriad of deductions and expenses, some of which are less well known . If you are in doubt about the potential tax implications of an expense (or income) it can be useful to consult with an accountant .
Want to Simplify Your Small Business/Self Employed Taxes?
📝 Stay Organized
Get your free Small Business Tax Return Checklist to help you gather everything you need and avoid missing key deductions.
📘 Learn the Essentials
Check out my book Small Business Tax Facts for clear, practical guidance on Canadian small business taxes written specifically for self-employed individuals and sole proprietors.
🎥 Book a Consultation
If you have questions about tax and would like personalized guidance relating to your situation, I’m happy to help. Learn More.
