To expense or not to expense?: Newsletter March 5, 2021

Hello All,

There are a number of informal terms for a small business – you can be an entrepreneur, self employed, a freelancer, an independent contractor, consultant or you can simply be a small business.  From a legal and tax standpoint, the only distinction that really matters is whether you are incorporated or unincorporated.  Most deductible expenses are applicable to all business types and are generally calculated the same way, with a few exceptions. (For example automobile expenses when taken by a corporation can claim a per km rate or the corporation can own the vehicle outright. Unincorporated business only have the option of claiming the business percentage of car expenses). Business owners, of course, want to deduct the maximum amount of expenses possible, for good reason. Taxes payable are significant and can be a nasty surprise to anyone who hasn’t prepared for them. Every expense is worth the value of the expense multiplied by your marginal tax rate. So, if your marginal tax rate is 40% and you have a business expense of $1000, it means that this is worth $400 reduction in taxes. Expenses can add up and it is usually worth it to put in a bit of extra work to ensure that you have captured all your business expenses. (As noted in my blog post, a good accounting system can really help to reduce the amount of work at year end and can often pay for itself in terms of capturing expenses that you might otherwise have missed).

While I encourage everyone to deduct every single expense to which they are entitled, I also caution my clients to exercise judgement and ensure that their expenses, overall, are reasonable. It is up to you to determine how aggressive you want to be when claiming deductions. The upside of being aggressive is that you pay less tax. The downside is the increased potential for audit and the associated pain which can be an ongoing nightmare and is something I wouldn’t wish upon anyone.

I will be posting more about tax over my next couple of newsletters. If there are questions you have or a blog topic that you would like to see written, don’t hesitate to reply to this email or let me know at my feedback form

My blog post takes a look at some common business expenses and gives you some insights into what you should know about expenses as well as administration and deadlines. There is a plethora of information about deductible expenses on the internet and CRA has a fairly comprehensive list as well. I have also included a blog post from earlier this year which looks at common mistakes, some of which relate to tax.

Small Business Articles/Tips

New GST/HST rules for Digital Sales : This article from CPA Canada discusses the new proposed rules, already adopted in Quebec, on foreign companies who sell digital products in Canada. This applies to companies such as Netflix. Additionally anyone who provides short term rentals eg. AirBnb or vacation rentals will also likely be subject to a more onerous tax regime.

Tax Tool : If you want to keep track of how much you might owe in taxes, I highly recommend this tax calculator. It allows you to enter/combine employment, self employment, dividends etc. and determine your approximate tax liability depending on which province you are located. It is a great way to keep track of your tax and ensure that you have saved enough to pay it at the end of the year.

QBO Tip : One of my favourite features of Quickbooks Online is the ability to connect your bank and credit card accounts which once done, download transactions automatically. You can then create rules to categorize certain transactions automatically. The amount of time saved by using this feature can be significant especially if you have more than a few transactions. If you are downloading your transactions, it is very important that you reconcile your bank accounts at least on a monthly basis to ensure that no transactions have been missed or duplicated as this can cause all kinds of problems.

Products

Thank you to everyone who has purchased my ebooks. I really appreciate it and sincerely hope they have been useful Please don’t hesitate to leave feedback on my form below.

Small Business and Your Dividends: For those of you who are doing it yourself, and have not had time to file your dividends, this book helps you understand exactly how dividends work and how to submit them to the government. There is also a free dividend checklist that you can download here.

Start Your Business: If you are planning to start a business, or already have one but would like some guidance, I’ve been told that this book is very useful.

Discount: Save 25% on either guide by using the discount code “special”.

Feedback Form: I have created a feedback form for anyone who would like to provide their insights into blog posts, topics for new blogs, feedback on my products or anything else. I’m always looking for ways to improve or provide value (to the extent possible) and this will be most helpful.

As always, I would like to welcome my new subscribers and of course my current subscribers for sticking around. Hope everyone has a wonderful weekend!

Ronika