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.

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Are Clothing and Other Personal Attire Costs Tax Deductible?

The fundamental rule for deducting any type of expense from your business income is to determine whether it was incurred for the purpose of earning income:
No deduction shall be made in respect of an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property
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What to Do When your Tax Obligations are Overdue

Small business owners have the added responsibility of ensuring that they are aware of, and comply with, a variety of tax obligations.  For some, this can be somewhat overwhelming, resulting in an accumulation of government notices, assessments, requests for information etc. that just add to stress levels.  While ignoring the problem, hoping that it will go away, may seem like an attractive option, it is important to note that the revenue agencies never forget.  They are also both able and willing to take extreme measures to collect upon what they perceive to be unpaid debts eg. Freeze your bank accounts.
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Tax Filings for a Typical Canadian Small Business

When starting a business, it can be confusing and a little overwhelming to keep on top of the different types of tax filings that need to be submitted and the timing on each one.  Documents received from the government are not always clear as to what needs to be done, particularly if you are not familiar with what they are asking for.  It can be easy to put them aside to deal with them later, however this will usually result in more letters and if left for long enough, arbitrary assessments and interest and penalties. It is therefore prudent for registered and incorporated businesses to keep on top of their tax filing.
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Revenue Canada Interest, Penalties and Payment Arrangements for Income Tax and GST/HST Returns

Whether you are an individual or a business in Canada, taxes are an inescapable part of your existence.  All sources of income need to be calculated, tax returns needs to be filed and taxes owing must be paid.  This is somewhat facilitated if you are an employee as your employer tends to take care of the majority of remittances.  Self-employed individuals, sole proprietorships, partnerships and corporations on the other hand, must account for their income and expenses , determine taxes payable  and remit the appropriate amounts.  Additionally, businesses are also responsible for other filings including GST/HST and QST and payroll.  A lack of knowledge, imperfect accounting systems and the business of running a business sometimes interfere with the timeliness of filings.  The Canada Revenue Agency attempts to curb these tardy behaviours by imposing penalties and interest on late filings as follows:

Unincorporat

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20 Essential Tax Facts for Small Business Owners

As the income tax filing deadline for the year approaches small business owners and their accountants are starting to feel the pressure.  Receipts need to located, invoices entered, bank statements reconciled.  Accountants’ offices are littered with shoeboxes and accordion folders while tax return checklists and missing info lists are being compiled and checked off.  Google is starting to note an increase in tax related searches as business owners and accountants search for clarity on a variety of tax regulations, deductions and deadlines .

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14 Year End Organization, Financial and Tax Tips to Manage Your Personal Finances

As a chronic procrastinator I tend put all my non “attend to immediately” documents in baskets and boxes resulting in, at year end, a colourful array of documents.  There are letters, bills, invoices, receipts, statements and the occasional delivery menu that did not get filtered out.  The intention is to organize them, on a regular basis, in the near future.  In reality, this usually does not tend to happen until the end of the year.

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The Perfect Tax System?

The perfect tax system, for most of us, is one where there are no taxes.  Since this is extremely unlikely in our lifetimes (and many more to come), most tax regimes could still use a complete overhaul.  According to this article in The Economist, a group of economists headed by Sir James Mirrlees has proposed radical tax reform, arguing that the "most governments could find a way to raise the amount of money they need from the tax system while imposing much lower costs than they currently do".
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