Personal Income Tax, Small Business

Tax Benefits for the Self-Employed

There are many tax advantages for self-employed Canadians who work from home and hire family members in their business.

The December holiday season is a time for home and family. This year, if you are self-employed, you may want to consider incorporating home and family into your business to create tax benefits for both the business and the family. Consider the following opportunities to reduce your taxable income and thus increase the amount of money left over to support your family. Continue reading

Personal Income Tax

Take Two

Make sure you collect and keep all your receipts for tax-deductible medical and moving costs.

Now is a good time to take a look at two tax deductions that taxpayers often think little about until the approaching income tax deadline sends them scurrying to find all those illusive receipts they might need for the end-of-the-tax-year meeting with their CPA. Continue reading

Corporate Income Tax, Personal Income Tax, Small Business

Salary or Dividends?

The way a bonus is paid has a significant effect on corporate and personal after-tax income.

You are an owner-manager and you’ve just had a really good year. Profits are up significantly and you want to reward your employee shareholders with a bonus. But how? Salary or dividends? The answer to this age-old question is not as simple as it seems. It is even possible to receive remuneration that is a combination of salary and dividends. However, because every company and its shareholders have different needs, a “one size fits all” approach to remuneration is not prudent. Continue reading

Corporate Income Tax, Personal Income Tax

Income Tax Fraud

Make sure you hire the right person or company to prepare your income tax return.

According to the Canada Revenue Agency (CRA), 28 million people file income tax returns each year and of that number, 50% use tax preparers. Tax preparers can register with the CRA to use EFILE to transmit the completed return through an encryption technology that instantly acknowledges the tax return has been received.

So, what could possibly go wrong for the taxpayer? Unfortunately, not all tax preparers are honest. And, these less-than-honest ones take advantage of the fact that prospective clients believe the tax preparer:

  • is an expert and will prepare the return better than they are able to do it themselves
  • will find ways to get the maximum refund
  • has the taxpayer’s best interest at heart
  • is registered to EFILE tax returns and thus the CRA vouches for their integrity

Continue reading

Personal Income Tax

Tax – The Deciding Factor

A six-figure earned income may not have as much spending power as expected after taxes.

Wages, salaries and all other forms of earned income have increased dramatically for those with the required skills who are willing to move to the parts of the country where such skills are in demand. Indeed, it is not unusual to see T4s at year end in excess of $100,000.

The satisfaction of earning a six-figure income is quickly tarnished, however, after the amount of federal and provincial tax has been calculated.

A $160,000 annual salary income, for instance, is equal to $13,333 per month. Based on 2013 personal tax calculations, however, a single person living and working in British Columbia, for example, would pay $52,423 in combined deductions from federal and provincial income tax, Canada Pension Plan (CPP) and Employment Insurance (EI). Continue reading

Corporate Income Tax, Small Business

Year-End Tax Strategies

It’s never too early to start planning your year-end tax strategies.

For many businesses, the month of October signals that the end of the fiscal year is not far away. Realizing that December 31 is fast approaching should prompt you, as an owner-manager, to review your year-to-date corporate and personal data and start putting your tax strategies into place. At the same time, remember to set up a meeting with your CPA. (Corporations can have a fiscal year end other than Dec. 31; this would, of course, affect the timing of the year-end meeting.) Continue reading

Corporate Income Tax, Personal Income Tax, Small Business

Pooled Registered Pension Plans (PRPPs)

Small-business owners and the self-employed now have a new pension plan alternative.

How the PRPP Works

Federal Pooled Registered Pension Plan legislation came into force in 2012. It is designed to provide a retirement savings option for the self-employed and businesses that do not have an employee pension plan. It is attractive for those companies that cannot afford the cost of administering an employer-sponsored plan or a company RRSP, and do not want the fiduciary liability that may accompany such a plan. Continue reading

Corporate Income Tax, Small Business

Zappers

New federal legislation is now in place to punish users of electronic sales suppression software.

The federal government is getting tough with businesses that use electronic sales suppression (ESS) software (commonly called “zappers”) to delete or modify point-of-sale (POS) transactions for the purpose of evading taxes. Effective January 1, 2014, zapper users will, of course, not only have to pay the unremitted taxes plus interest but will also face substantial fines and even imprisonment if they manufacture, sell or possess these devices. These sanctions have been introduced through amendments to the Excise Tax Act and the Income Tax Act. Continue reading

Personal Income Tax, Small Business

Finalizing Your 2013 Income Taxes

Keep complete records and make use of all your eligible deductions.

Instead of thinking just about paying off your credit cards, it might brighten your day a bit to think about deductions available to you this year and in future years to reduce the amount of personal income taxes you have to pay.

To understand how deductions work, take a look at the CRA’s T1 General form available online at the CRA’s website. Lines 101 to 150 are used to list and tally your various types of income. Line 150 shows your total income. Lines 206 to 233 list and calculate the deductions you can make to reduce your total income to get your net income (Line 236). Lines 244 to 257 list and total other types of losses and deductions to give your taxable income (Line 260). Because the deductions available between lines 206 and 260 reduce your total income dollar for dollar, they can have a significant impact on the amount of your taxable income.

If you think you can claim any of the following deductions, make sure you have all the supporting documents. Talk with your tax professional to make sure you are keeping everything you will need in the case of an audit. You usually do not have to send documents with your tax filing, but you will certainly need them if the Canada Revenue Agency (CRA) questions your claims. Continue reading