Making Sense of Your Tax Documents: March 18th, 2022

Hello All,

By now most of you have received a variety of tax documents. Some are straightforward while others may seem a bit cryptic. There are also some taxable events that do not actually result in a tax document, but require the filing of forms anyway. And if you are an unincorporated small business owner or have rental property, almost all of the burden of preparing your tax reporting is on you.

Let’s look at some of the more common documents:

• The most common tax slips are the T4 (RL1 in Quebec) which summarizes your income from employment and deductions paid by you, for the year.

• T5s (RL3 in Quebec) reflect investment income such as interest and dividends that you might have earned on non registered accounts. A T3 is very similar to a T5 except that it relates to trust based investments.

  It should be noted that income earned in an RRSP or TFSA are not taxable and as such you will not receive a tax slip nor are you required to report it on your tax return.

• If you have made RRSP contributions, you will also receive a tax slip which indicates whether it was made during 2021 OR in the first 60 days of 2022 (both of which can be used as a deduction against 2021 income)

• Charitable donations to registered Canadian charities will come with a specific tax receipt upon which the charity number is reflected. If you don’t have this, then it is not claimable.

• If you have investments that are not in a TFSA or RRSP, you might also receive a T5008 which shows capital gains and losses on securities that have been sold. I have included a blog post which discusses the treatment of investment income in greater detail

• Anyone who received Covid related benefits will receive a T4A indicating the amounts received and any withholding taxes paid.

• Medical expenses should be accompanied by receipts issued by the medical practitioner. You should also make sure that the expense qualifies

• If you sell your principal residence, although no taxes are payable, you are required to complete Schedule 3. More details about this here.

• Small businesses might receive a T4A for some of their income. A T4A is supposed to be filed for all service providers e.g. freelancers, subcontractors etc. but this area of tax law is murky so not all businesses do this. If you do receive a T4A relating to business income make sure to reflect it on the T2125 schedule of business income, otherwise you might be subject to a reassessment.

When starting to do your taxes it is important to reflect upon everything that happened in 2021 that had financial implications, and determine if this needs to be reported on your tax return. A tremendous amount of information is available with an internet search, but if you are still feeling unsure or overwhelmed, it might be a good time to reach out to an accountant.

If you have specific questions about QBO, accounting or tax, don’t hesitate to send me an email at contact@montrealfinancial.ca and I will attempt to answer it in future newsletters.

Below are a few posts to help you navigate your personal taxes:

Small Business Articles/Tips

CBC Interview: I was on CBC a couple of times last week to discuss the endlessly exciting topic of taxes and answer listener questions, some of which might pertain to your situation.

CBC Radio Noon interview with Shawn Lyons (50 minutes)

CBC Daybreak interview with Sean Henry (15 minutes)

Tax Tip: Calling CRA at this time of year can be a grueling experience and you might still not get the answers you need on the first try. CRA has prepared a list of situations where you might be able to get information without having to call them. See link here.

QuickBooks Tip:

If you have a simple business, you can model your chart of accounts (the categories to which you assign your transactions) on the small business tax form i.e. the T2125. This means that when you produce the profit and loss statement in QBO (or other accounting software) it will be much easier to transcribe on to the T2125.

The expense account categories can be found on Page 3 of the T2125, Statement of Business and Professional Activities

Books and Resources

Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed or anyone who has income that does not appear on a T4)

This book helps you have a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.

FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.

QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.

FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.

Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).

Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.

Please note that all books on my website are in PDF format.

If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.

Free Resources

New: Business 2022 Tax Deadline Calendar
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters.

Consultations

I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here.

Note that I no longer provide ongoing accounting or tax preparation services.

Reviews/Feedback

• I would love to hear your comments on my current blog posts, topic ideas for new blogs, book feedback or anything else that you want to talk to me about. You can use my feedback form or email me directly at ronika@montrealfinancial.ca.

• For anyone who has purchased my books through Amazon or directly and found them useful, I would be very grateful for a review on Amazon (to leave a review you only need to have an account with Amazon even if you did not purchase the book from there).

• Finally, if you think anyone would benefit from this newsletter, you can send them to my subscribe link.

May you all have an easy time navigating through your tax documents:)

Ronika