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As a small or medium business owner in Alberta, you are constantly looking for ways to maximize your savings and reduce your tax liability. One effective strategy is to take advantage of eligible business expenses that can be claimed as write-offs. At Richardson Miller LLP, we understand the importance of optimizing your tax deductions and reducing your business tax liability. In this blog, we will highlight the top 11 tax write-offs available for small and medium businesses in Alberta, helping you save money and achieve financial success.

What is a Tax Write-Off?
A tax write-off, also known as a tax deduction, is an expense that can be legally deducted from your taxable income. By strategically identifying and claiming eligible expenses, you can reduce the amount of income subject to taxation. This ultimately helps you lower your overall tax liability in that tax year and keep more money in your pocket.

Tax Write-Offs for Small Businesses

1. Office Rent and Utilities

Do your run your business in office or building? Did you know that you can deduct a portion of your office rent and utility expenses? This includes rent payments, property taxes, insurance, and utilities such as electricity and internet.

When it comes to office rent, small business owners can deduct a portion of their monthly rent payments. This applies whether you have a dedicated office space or if you work from a home office. The key is to calculate the percentage of your home or office space that is used exclusively for business purposes. This percentage will determine the portion of your rent that can be deducted.

In addition to rent, other expenses related to your office space can also be deducted. This includes property taxes and insurance premiums specifically tied to the business portion of your property.

Utility expenses such as electricity and internet are also eligible for deductions. Just like with rent, you will need to determine the percentage of these utilities that are used for business purposes. This can be done by calculating the square footage of your office space in relation to the total square footage of your home or office.

Small businesses spend an average of 11% of their total expenses on rent and utilities. Source: Statistics Canada

 2. Business Travel Expenses

If you travel for business purposes, you can deduct expenses such as airfare, hotel accommodations, meals, and transportation.

The Canada Revenue Agency (CRA) allows you to claim reasonable and necessary travel expenses incurred for business purposes. This includes travel within Canada, as well as international travel. However, it’s important to note that personal travel expenses cannot be claimed under the guise of business use.

When it comes to airfare, small business owners can deduct the cost of flights or other transportation expenses related to business travel. This includes airfare, train tickets, and rental cars. Hotel accommodations are also eligible for deductions, as long as they are reasonable and necessary for business purposes.

Meals and entertainment expenses can also be deducted, but only up to a certain percentage. Generally, the CRA allows for a 50% deduction on meals and entertainment expenses. However, it’s important to keep detailed records of these expenses, including who was present and the purpose of the meal or entertainment.

 3. Vehicle Expenses

Do you have a vehicle that you use for your business? If so, you can claim deductions for expenses such as gas, maintenance, insurance, and lease payments. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to keep detailed records of your business mileage to support your claims.

To claim vehicle expense deductions, it’s critical to maintain accurate records of your business mileage. This includes tracking the date, starting and ending locations, and purpose of each trip. You can use a mileage logbook or smartphone app to make this process easier. With detailed records, you can confidently claim the deductions you’re entitled to while minimizing the risk of an audit.

Benefits of Vehicle Expense Deductions

By taking advantage of vehicle expense deductions, you can:

  • Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  • Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  • Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Business Efficiency: Use your vehicle expenses to streamline your operations and improve productivity.

4. Home Office Expenses

If you operate your business from a home office, you may be eligible to deduct a portion of your home expenses such as rent or mortgage interest, property taxes, utilities, and maintenance costs. These deductions can significantly reduce your taxable income and help you keep more money in your pocket. However, it’s important to ensure that you meet the specific criteria set by the Canada Revenue Agency for claiming home office expenses.

For example, your home office must be your primary place of business, and it must be used exclusively for business purposes. You must also be able to demonstrate that your home office is a clearly defined workspace and that it is used regularly and continuously for business purposes.

Benefits of Home Office Expense Deductions

By taking advantage of home office expense deductions, you can:

  •  Reduce Tax Liability: Lower your taxable income, resulting in decreased tax payments.
  •  Increase Cash Flow: Keep more money in your business, allowing for reinvestment or growth.
  •  Boost Profitability: Optimize your financial performance by minimizing unnecessary expenses.
  •  Improve Work-Life Balance: Operating from a home office can provide flexibility and improve work-life balance.

 5. Professional Services

When you run a business, you will inevitably use professional services such as lawyers, accountants, and consultants. These fees can be claimed as business expenses, which can help reduce your taxable income and lower your tax liability.

Hiring professionals such as lawyers, accountants, and consultants can help ensure compliance with tax laws and provide valuable advice for your business. For example, an accountant can help you keep accurate financial records, file your taxes on time, and identify areas where you can save money on taxes. A lawyer can help you navigate legal issues related to your business, such as contracts and intellectual property. A consultant can provide specialized expertise in areas such as marketing, human resources, or operations.

It’s important to keep detailed records of the services provided and the fees charged. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the fees paid are reasonable and necessary for your business.

Overall, hiring professionals can provide valuable support for your small business and help ensure compliance with tax laws. By claiming these fees as business expenses, you can reduce your tax liability and reinvest those savings back into your business. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the Canada Revenue Agency (CRA).

 6. Advertising and Marketing

Expenses related to advertising and marketing your business can include a wide range of costs. This includes the cost of online ads, such as pay-per-click campaigns or social media advertising. It also includes expenses for print ads, such as newspaper or magazine advertisements. Additionally, costs associated with website development and maintenance can be claimed, as having a strong online presence is crucial for many businesses today. Furthermore, expenses for promotional materials like business cards, brochures, and branded merchandise are also eligible for write-offs.

Small businesses spend an average of 2% of their total expenses on advertising. source: – Canadian Federation of Independent Business (CFIB). 

7. Office Supplies and Equipment

Purchases of office supplies such as stationery, printer ink, and computer software can be claimed as write-offs. These expenses are necessary for the day-to-day operations of your business and can add up quickly.

In addition to office supplies, if you buy equipment such as computers or furniture for your business, you may be eligible for capital cost allowance (CCA) deductions. This allows you to deduct a portion of the cost of the equipment each year, based on the depreciation of its value over time. This deduction can help reduce your tax liability in the year that the equipment is purchased and in subsequent years.

It’s important to keep accurate records of these expenses and equipment purchases, including receipts and invoices. This will help you accurately calculate the amount that can be deducted on your tax return. In addition, it’s important to ensure that the expenses and equipment purchases are reasonable and necessary for your business.

 8. Employee Salaries and Benefits

Salaries, wages, and bonuses paid to employees are considered necessary expenses for the operation of your business. These payments are eligible for deduction as long as they are reasonable and directly related to the services provided by the employees.

In addition to salaries and wages, contributions to employee benefit plans are also deductible expenses. This includes contributions made towards health insurance plans, retirement savings plans (such as Registered Retirement Savings Plans or RRSPs), or other employee benefit programs. These contributions not only provide valuable benefits to your employees but also offer tax advantages for your business.

It’s important to keep accurate records of these payments and contributions, including payroll records, benefit plan statements, and receipts. This will help you accurately calculate the amount that can be deducted on your tax return. Additionally, it’s crucial to ensure that the salaries, wages, bonuses, and benefits provided are reasonable and in line with industry standards.

Small businesses in Canada employ approximately 8.3 million people, accounting for 70.5% of private sector employment. Source: Canadian Federation of Independent Business (CFIB)

9. Training and Professional Development

Expenses related to training and professional development for yourself or your employees are considered necessary for the growth and improvement of your business. This includes registration fees for conferences, seminars, courses, and workshops. These events and programs provide valuable opportunities to enhance skills, gain knowledge, and stay updated with industry trends and best practices.

By claiming these expense as small business tax deductions, you can not only invest in the development of yourself or your employees but also reduce your tax liability. It’s important to keep accurate records of these expenses, including receipts, invoices, and proof of attendance.

Small business owners can foster a culture of continuous learning and development within their organizations. This can lead to improved skills, increased productivity, and ultimately, business growth. However, it’s important to keep accurate records and consult with a tax professional to ensure you are maximizing your eligible deductions within the guidelines set by the CRA.

10. Bad Debts

It has happened to so many businesses, bad debts! If you have outstanding invoices that have gone unpaid or debts that are deemed uncollectible, you may be able to claim them as write-offs, helping to reduce your taxable income and lower your overall tax liability.

When a customer or client fails to pay an invoice, it can have a negative impact on your business’s cash flow. Did you know that the Canada Revenue Agency allows you to claim these unpaid invoices or bad debts as deductions, recognizing the financial loss incurred?

To claim these write-offs, it’s important to keep documentation and evidence of the unpaid invoices or bad debts. This includes maintaining records of the original invoices, communication attempts, and any supporting documentation that demonstrates your reasonable efforts to collect the debts. These efforts may include sending reminders, making phone calls, or engaging in collection activities.

It’s crucial to note that before claiming a bad debt as a write-off, you must make reasonable efforts to collect the debt. This means demonstrating that you have taken appropriate steps to recover the amount owed. The CRA requires that you have exhausted all reasonable means of collection before claiming the debt as uncollectible.

11. Charitable Donations

When you make a donation to a registered charity, you are not only supporting a worthy cause but also receiving a financial benefit. To claim these write-offs, it’s important to keep documentation and evidence of the donations made. This includes maintaining records of the donation receipts, which should include the name and registration number of the charity, the date of the donation, and the amount donated.

It’s important to note that not all charitable donations are tax deductible. The charity must be registered as a qualified donee, and the donation must be made voluntarily, without any expectation of receiving something in return.

Under the Income Tax Act, qualified donees are organizations that can issue official donation receipts for gifts they receive from individuals and corporations. Registered charities can also make gifts to them. source: canada.ca

Supporting charitable causes not only helps the community but also provides tax benefits for your business. By claiming these donations as write-offs, small business owners can reduce their tax liability while also making a positive impact on society.

By leveraging these top 11 tax write-offs for small and medium businesses in Canada, you can reduce your tax liability and maximize your savings. However, it’s important to consult with a professional accountant like Richardson Miller LLP to ensure compliance with tax laws and optimize your deductions. Contact us today to learn more about how we can help you navigate the complex world of business deduction strategy and achieve financial success.

Owning a small business is a dream for people looking for the freedom to be their own boss and work to better themselves. Owning a small business can be very rewarding yet challenging at the same time. To succeed in the current economic climate, an equal amount of effort must go into a small business owner’s financial planning alongside running the business itself. As we have seen, especially in recent years, times can change in an instant and have lasting effects on people and companies. Understanding what it takes to plan for not only running the daily operations of a business but planning for any potential circumstances is required for small businesses.

Small Business Owners Financial Planning is a foundational part of business

Richardson Miller LLP works hand in hand with clients of all shapes and sizes to help them strategize, prepare and manage all aspects of their financial needs. We wanted to share our experience with those individuals looking to do it yourself when beginning the adventure of creating their businesses.

Our 9 steps for small business owners’ financial planning will help you to make sure your business succeeds in the present while preparing for the future.

1. Draw the Line Between Personal and Business Goals

Before you begin to create your financial plan, you have to set clear boundaries for the goals you have in mind. Small business owners have a detrimental tendency to go all-in when trying to create their own business from the ground up. While it is important to put extra effort and time into your new venture, financial goals need to be separated.

Be prepared for the possible outcome that you will not operate your business indefinitely. All good things come to an end. Business ventures are not immune from this fact. Separating your business and personal finances and business finance will protect yourself and your family. Protecting both personal and business finances is a key part of small business owners’ financial planning.

2. Set Your Long Term and Short Term Goals

Business goal setting requires you to look to the future while understanding the steps you need to get there can be even more valuable. A proper business plan will set quarterly, yearly, and future goals beyond.

  • Quarterly goals or 90-day goals are the small steps that will lead your business down the path to future success.
  • Yearly goals are set to make sure you are on the path you want to be on to reach your financial plan.

Whether you want to build your business into a franchise, build to sell, or provide a specific service to a localized area, creating and meeting the goals you set are the markers on the map to make sure you are on the road you want to be.

3. Build Liquid Assets

Business assets are important for your financial health. While accumulating assets, you should be careful to keep a large number of assets in liquid options. Liquid assets are assets that can easily and quickly be converted into cash on hand.

Having the majority of your assets in liquid form buffers your business from any short-term emergencies that might arise. Whether it be an unexpected cash shortage or unexpected bills, having a cash cushion available to cover you and your business is crucial to keep your business alive.

4. Track your Cash Flow

Understand the nature of your business. Taking time to analyze your cash flow and using the information to plan what to expect each month will save you time and stress in the future. Businesses work in cycles. Taking the time to sift through your cash flow histories, you will eventually be able to build a pattern so you can prepare both how to staff your business and understand when short weeks might occur.

For example, a lawn care business is a typical seasonal business where the incoming cash flow will inevitably slow down during the winter months. Understanding the cash flow, the owner can plan and set aside money from high-grossing months to cover costs and expenses during the winter months. This is an extremely high-level example, however, you can see the point to be made.

5. Prepare for Tax Season

Tax planning is one of the two inevitabilities in life as the old saying goes. Unfortunately, they can be very complicated for small business owners. You can take the DIY route for preparing your taxes, but our recommendation is to seek the services of a trusted and reliable certified public accountant. Outsourcing tax preparation and planning saves you hours and hours of accounting while also protecting yourself knowing all your tax documents are backed by a qualified professional.

Certified public accountants are trained and continue education on tax laws for your area. Tax laws can constantly change and have a major impact on your business’s financial situation. Richardson Miller LLP. offers tax and other financial services for any size business.

6. Identify Potential Risks

Business risks can lurk around every corner. Preparing for financial risks will protect you and your business from potentially major incidents. Besides cash flow shortages, there are several issues that might arise without warning. Common business risks to plan for include:

  • Employee injury
  • Legal Action
  • Property Damage and Theft

Having emergency funds and contingencies prepared for any possible outcome will keep your business afloat and running smoothly no matter the situation. A risk management plan does not have to be a pile of conspiracy theory outcomes, but a general plan set aside for instances covering multiple risks can be the best option at times.

7. Have Plans for Emergency Situations

Sometimes a situation can be more than a small bump in the road. These unfortunate outcomes can lead to business closure or even be caused by the death of the owner. Having a business succession plan and exit plan will be sure you are prepared for even the worst possible outcomes.

A business succession plan is a strategy set in place for the transfer of business ownership in extreme circumstances. You may want the business to transfer to a family member or trusted partner. Having a plan to make sure your business ends up in the right hands will help your business survive no matter the outcome.

People change and so do their goals. Small business owners might decide it is time to move on from their current business venture or lose passion for operating their current field. Developing and maintaining an exit plan will protect your financial situation despite parting ways with your business.

8. Plan for Retirement

Retirement planning is not only for small business owners, but can often be overlooked by them. Small business owners tend to put everything in their business without considering retirement savings. A structured retirement plan will make sure when the time comes to retire you will be able to live comfortably.

9. Review your Plans and Goals

Once you have created your complete business plan, the planning does not simply end. You need to constantly review and reassess your goals and plans regularly to take into account any changes in the economic climate and your business. Time for reflecting on if your goals were met will help light a fire or set you at ease so your business is on the track you envision. These comprehensive reviews are suggested yearly, at minimum, if not every quarter.

If this sounds overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion and get you on the right path. Having clean, up-to-date books will make tax time so much easier for you!

Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

It happens every year; Tax Season!

People always hope that they get a tax return as opposed to a tax bill. But what happens when you get a tax bill? How do you pay it? There are a number of ways to pay when it comes time to pay your personal or business taxes. Whether you decide to pay in person or utilize the CRA My Payment online option (which allows individuals and businesses to pay taxes via the Canada Revenue Agency (CRA) website), the choice is yours. Below we’ve done a brief walkthrough of the different payment methods when it comes time to pay your CRA tax bill.

This a quick reminder of some of the important due dates including:

  • filing and payment due dates
  • and dates for receiving credits and benefit payments from the CRA.

Filing dates for 2022 taxes

Mar 1, 2023: Deadline to contribute to an RRSP, a PRPP, or an SPP
Apr 30, 2023 (May 1, 2022 since April 30 is a Sunday): Deadline to file your taxes
Jun 15, 2023: Deadline to file your taxes if you or your spouse or common-law partner are self-employed

Payment date for 2022 taxes

Apr 30, 2023 (May 1, 2022 since April 30 is a Sunday): Deadline to pay your taxes

How to pay taxes to the CRA

Pay In-Person

Did you know that you can pay your taxes in person at any Canada Post outlet? It’s true, head to your local Canada Post outlet and you can pay your taxes with cash or debit card. You can also go to your local bank branch and pay taxes to the CRA there.

How to pay taxes owing to CRA online via debit card?

In order to pay taxes to the CRA online, you can access it via CRA sign-in services or with CRA My Payment. This is to pay with a debit card only aka Interac Debit, Visa Debit or Debit Mastercard, you cannot pay using credit cards with My Payment. To make a payment:

  1. Go to CRA my payment and click pay now
  2. Select payment type
  3. Select payment allocation
  4. Enter your account number, period date, and amount]
  5. Keep your transaction receipt with a payment confirmation number

Please note that payment usually takes 1 to 3 business days to be processed by the CRA. To avoid further fees and interest charges, make sure to pay on time.

Taxes that can be paid online – Individuals

  • Individual Income tax
  • Balance Owing/ Arrear payments, Installment and Payments on Filing
  • Child and Family Benefits Payment

How to pay taxes owing to CRA via online banking?

You can set up an online payment to electronically transfer the funds to the CRA. This can be done via your Canadian financial institution’s website or online banking app. In order to set up this type of payment:

  1. Sign in to your online banking
  2. If you are an individual, under “Add a payee” look for a relevant payee depending on the type of your payment.
    • CRA (revenue) – current-year tax return
      • Use this option to make a payment for your current tax return. You can use this option only once per return.
    • CRA (revenue) – tax amount owing
      • Use this option to pay any amount owing.
    • CRA (revenue) – tax instalment
      • Use this option to make payments toward the future tax year.
    • CRA (revenue) – Canada emergency benefit repayment
      • Use this option to repay a Canada emergency response benefit, Canada emergency student benefit, Canada recovery benefit, Canada recovery sickness benefit, or a Canada recovery caregiving benefit.
  3. If you are a business, under “Add a payee” look for a relevant payee depending on the type of your payment.
    • Federal – Corporation Tax Payments – TXINS
    • Federal – GST/HST Payment – GST-P (GST-P)
    • Federal Payroll Deductions – Regular/Quarterly – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 1 – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 2 – EMPTX – (PD7A)
    • Federal – Canada emergency wage subsidy repayment
  4. Enter your social insurance number (SIN) or business number as your CRA account number.

Payments are typically received by the CRA within 5 business days. In order to avoid fees and interest, Richardson Miller LLP recommends setting up a payment in advance.

How to pay taxes owing to CRA in instalment payments?

You can pay tax in instalments to the CRA but did you know that sometimes, the CRA will request that you pay the current tax year’s taxes in instalments during the current year? What this means is the CRA may ask you to pay in instalments towards your expected 2021 taxes owning in 4 quarterly payments throughout 2021.

Here are some examples of situations where this will be requested:

Personal Income Tax: If you had a balance owing of over $3,000 in any year, you may be required to pay in quarterly instalments towards the following year’s tax bill. Usually, the dates are March 15, June 15, September 15, and December 15.

Corporate Income Tax: Usually, if your last corporate income tax owing is higher than $3,000, you may need to pay in instalments (monthly or quarterly) towards your next year’s tax bill. There are a few options to calculate your monthly and quarterly instalment payments:

Monthly Payments

  1. One-twelfth (1/12) of the estimated tax payable for the current tax year is due each month of the tax year.
  2. One-twelfth (1/12) of the tax payable from the previous tax year is due each month of the current tax year.
  3. One-twelfth (1/12) of the tax payable from the year before the previous tax year is due in each of the first two months of the current tax year. One-tenth (1/10) of the difference between the tax for the previous tax year and the total of the first 2 payments is due in each of the remaining 10 months of the current tax year.

source: canada.ca

Quarterly Payments

  1. One-quarter (1/4) of the estimated tax payable for the current tax year is due each quarter of the tax year.
  2. One-quarter (1/4) of the tax payable from the previous tax year is due each quarter of the current tax year.
  3. One-quarter (1/4) of the tax payable from the year before the previous tax year is due in the first quarter of the current tax year. One-third (1/3) of the difference between the tax for the previous tax year and the first payment is due in each of the remaining three quarters of the current tax year.

source: canada.ca

If you are currently trying to make a payment arrangement with the CRA, the accountants at Richardson Miller LLP are happy to help you navigate through this tax situation. Reach out to the team today!

GST/HST Payments: In Canada, you are able to pay GST / HST owing either annually or quarterly. If your tax owing is more than $3,000 in a year, you could be told to pay quarterly payments in the following year just like personal or corporate tax income. The quarterly payments are equal to one-quarter (1/4) of your tax from the previous year.

Learn more about GST / HST and your business.

Late/ Unpaid Instalments: It can happen to any of us. Sometimes a payment is late or forgotten about. When this happens you may have to pay interest and possible penalty charges that will be applied if you do not pay your required tax instalments or paid insufficient amounts. More information about this can be found here.

We’re happy to answer your questions, clear up any confusion and get you on the right path with your personal or business taxes. Having clean, up-to-date books will make tax time so much easier for you!

Are you looking for a qualified, experienced Chartered Professional Accountant? Give us a call. We’re happy to help.

Last updated on March 15, 2023

You are officially caught on CRA’s radar…

  • CRA is auditing or reviewing your information
  • Your filings have been arbitrarily re-assessed
  • The collections department is harassing you

No matter what the reason, dealing with the Canada Revenue Agency (CRA) can be extremely stressful.

Here are some tips to help ease that CRA audit pain.

What are your responsibilities?

By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years.

If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper. Using the services of a tax professional does not relieve you of your responsibilities.

For an audit, you must make available to the auditor all of your relevant records (both paper and electronic) and supporting documents, and provide complete and timely explanations to the auditor’s questions. Failure to provide required books and records is an offence under the law.

Source: canada.ca

1. Do NOT Ignore them.

The problem will not go away. Keep the lines of communication open. Return phone calls even if the only thing you have to say is “I’m working on it”.

2. Deal with any requests or incorrect assessments ASAP as they are often very time-sensitive.

If you ignore requests and CRA re-assesses you, it can take several months to correct AND if you ignore them long enough, the problem may become unfixable.

CRA Audit Client Examples

a. I had a trucking company referred to me. He was behind on GST filings and CRA Factually assessed him. The client had opted to bury his head in the sand. The returns became statute-barred and CRA refused to reassess them. I luckily found a reasonable auditor to re-open the files and managed to save my (very happy) client $80,000.

CRA Factually assessed – If you don’t file your GST file on time, the CRA can arbitrarily access you and send you a bill.

b. In another case, (again, before he was my client) an automotive mechanic shop company underwent a payroll audit. The business owner and (non-CPA) accountant at the time didn’t respond properly to queries. CRA incorrectly assessed over $100,000 owing in source deductions. They were referred to me. It took over a year of fighting with CRA to have them amend their assessment to the correct balance owing of only $4,000. In the meantime, their corporate bank accounts were seized. Again, if it would have been dealt with properly in the first place, it would have never been an issue.

3. Enlist your Chartered Professional Accountant in dealing with CRA.

Generally, I’m the one who responds to my client’s CRA queries. If the client is preparing the response, I review it before it is sent in. In the case of an on-site audit, I prefer to gather the records and host the auditor in my own boardroom. This eliminates any intimidation factor.

Quite often, the accountant will know exactly what the auditor is looking for and be able to provide the facts and only the facts to get the issue resolved as efficiently as possible. The last thing you want is a simple review request for payroll to turn into a GST audit, personal benefit assessments, disallowed expenses… the list goes on.

Sometimes just a slight change in terminology can drastically change the audit outcome.

I had a trucking company client go through a review to determine whether a subcontracted driver was an employee. If the contractor was determined to be an employee, my client would have been liable for over $20K in payroll taxes. My client kept referring to the contractor in employee terms even though the nature of the arrangement was leaning toward the contractor. Had I not been able to pre-screen and rephrase his responses to the appropriate terminology, the client would have ended up with a nasty bill.

4. CRA isn’t always right.

I know…it’s shocking indeed. You want someone in your corner who understands taxes to be able to argue on your behalf.

I had a client undergo a GST audit. The auditor (who appeared somewhat inexperienced) proposed an assessment of over $20,000 owing. Upon review of his supporting paperwork, I successfully argued the GST owing down to less than $2,000.

Do you need help in dealing with a CRA issue? We’re happy to help!

 

GST QUICK METHOD

If your business is operating at revenue of $400,000 or less, you need to stop what you are doing and read this!

Canada Revenue Agency (CRA) offers an elective GST filing method for small businesses who have less than $400,000 in annual revenues. It is called the Quick Method and, in my opinion, it is a highly under-utilized election.

Who should use the Quick Method?

  • Other than a few industry specific exceptions, most businesses with less than $400,000 can use this election
  • Businesses with the majority of their expenses not being subject to GST would want to utilize this method. For example, if your largest expense is payroll you would definitely want to consider this.

How does the Quick Method work?

Under this method you would still charge the applicable rate of GST/HST on your sales, but this is not the same as the amount of GST you end up remitting up to CRA. What you end up remitting is based on the quick method remittance rates which are less than the applicable rates of GST/HST you charged.

Yes, that is correct, you collect more GST from your clients than you send to CRA. You do not get to claim any GST paid under this method though because the part of the GST you collected but got to keep accounts for the ITCs you would have otherwise claimed. The intention behind this election is to streamline the GST process for small businesses, but it can end up saving your business money! Who doesn’t want to save some money?

If the majority of your expenses are not subject to GST anyways, you are going to end up ahead under the Quick Method. You can find all the specifics on CRA’s website but I’ll go through a quick example below.

A practical example

It may seem a little confusing and it does require a little bit of number crunching so I will just sum it up a little.

Let’s look at Joe’s Contracting Ltd. Joe owns this business and he provides handyman services to his customers. He has very little costs associated with supplies as the majority of the jobs require only labour so he has one employee that helps him out. His business is based in Alberta and he earns exactly $400,000 in revenue a year.

Under the regular method of GST, Joe would collect GST of $20,000 from his clients and send the whole $20,000 up to CRA.

Under the quick method, Joe would still collect GST of $20,000 from his clients, but the cheque he sends off to CRA is only $15,120.

If you can choose to send CRA $20,000 or $15,120 which one are you choosing? I would think Joe would prefer sending the smaller cheque as well.

And has an additional bonus – this savings will continue to happen every single year when he files his GST return as long as he continues to meet the criteria.

The bottom line

If you think you qualify for the Quick method but have never heard of it before, you may very well be sending too much money to CRA. Reach out to us to discuss.

  1. Jazz Hands.

    That’s right. No auto-correct here—I meant it. With many cities implementing mandatory masks in public, we are missing out on a significant portion of our non-verbal communication options. Many of us can admit to over exaggerating our squinty eyes in attempts to convey that we are in fact smiling. Since Covid-19 is apparently here for the long haul, perhaps we need to consider implementing a universal sign that we are smiling without purposefully deepening our crows-feet (which, going forward, will likely be known as smiling mask wrinkles).

  2. Extended Deadlines.

    I recently visited my dental hygienist for the first time since lock down hit. After my teeth cleaning, I re-booked the appointment for six months later. In six months, it’ll be the end of March 2021! This realization was a bit of a smack in the face. In six short months, we’ll be doing our personal taxes all over again! This point is specifically for the procrastinators out there. Be aware that it’s almost time to do your 2020 personal taxes… even though you JUST finished your 2019 taxes. Perhaps you completed them earlier but JUST paid them. That next tax bill isn’t very far away. For many individuals (corporate filers included), the deadline extension has skewed the sense of urgency/timing/responsibility. Don’t procrastinate. Get ‘er done. Be on time. Missing deadlines may result in penalties, interest, missed incentive opportunities and delayed family tax credits.

  3. Covid-19 Incentives.

    Back in March and April, many folks got caught up in the government incentives and handouts. I’d encourage everyone to re-visit the CRA website to double check those programs. Over the last few months, the criteria has evolved and the website has been updated continuously. Did you actually qualify for that incentive? Perhaps you first thought you didn’t qualify but now you do. If you didn’t actually qualify but have received money, there are options to repay that money (via My Account and My Business Account on CRA online). Rest assured that CRA will be reviewing all who have received incentives to ensure eligibility.

  4. Creativity

    I’m impressed with the resiliency of entrepreneurs in Alberta. So many businesses have taken this setback and have quickly revised processes/systems and products/services to survive and or thrive. Thankfully this pandemic has hit when we have the technology to work from home. Could you imagine if this happened in 1985? Check out my article on how home offices impact your tax return. On the other hand, there are many businesses that have become victims of the lockdowns. This is truly heartbreaking. If you fall into this category, do continue to talk to your professional accountant to determine your filing responsibilities and opportunities to claim any losses.

If you need advice on COVID-19 issues with your business, please reach out! We’re happy to help. Contact us today.

The COVID-19 pandemic and resulting lockdowns have brought on a huge shift for people to work from home. Several business leaders have determined that having employees work from home is entirely possible and a great way to reduce overhead costs. Why would you force your employees to drive across town and sit in an office when they are just as productive (if not more) in their own homes? This trend has impacted our household. My husband’s automotive expenses are a fraction of what they were a year ago. On the other hand, our utilities, unlimited highest speed internet requirements, toilet paper and coffee costs have increased substantially. How does this trend impact your tax filing obligations?

Information for Employers:

If you have required your employees to work from home at least 50% of the time, they can claim some of their home office expenses on their personal tax returns. When you hand out your employees T4s, provide a completed T2200 Declaration of Conditions of Employment form. Indicate on the appropriate sections that the employee was required to work from home.

Based on the size of their home office, your employees will be able to claim a percentage of their expenses. This percentage is calculated by dividing the workspace area by the total finished area of the home. Expenses to track include: Utilities (heat, electrical, water), and maintenance (cleaning supplies, paint, plumbing, etc.) and rents. If your employee is paid commissions, they may also claim their insurance and property taxes. If home office specific expenses are incurred (fax line, increased internet capacities, office space only maintenance), the entire expense may be deductible. For example, if your household normally spent $50 per month on internet and now you spend $150 so that your ZOOM calls don’t freeze, one could argue that the $100 extra should be deductible. Similarly, if you revamped a spare room to create an office oasis (paint, shelves) you may (within reason) claim 100% of these costs.

Ensure that your employees are aware that employment expenses are often reviewed by Canada Revenue Agency. Encourage your team to keep their receipts/invoices/statements to be able to prove their claims.

Information for Business Owners:

Whether you are incorporated or a proprietor, you may also claim some home office expenses. The portion claimable is calculated in the same manner as for employees (office space divided by total finished area of your home). In calculating this percentage, it’s tempting to say that a significant portion of the home is used for business purposes. As a general rule, it’s best to keep the percentage around 10%. Any more than that and Canada Revenue Agency can argue that your home was a revenue generating property and you put your Principal Residence Exemption at risk… meaning tax implications on any gains when you sell your house. Also note that if you rent a secure commercial space, you likely cannot claim your office as well.

Keep track of your rents, heat, electricity, insurance, mortgage interest, property taxes, security monitoring fees, and maintenance costs. You can claim the calculated portion of those expenses. Consider office specific costs: the portion of internet required for the smooth running of your business, a fax line, office décor, desk, shelves, chair, chair mat, WIFI booster, etc. These office specific costs may be considered 100% for business purposes and expensed accordingly. Larger items such as furniture, computer, printers, and other office equipment would be expensed over a period of time via Capital Cost Allowance.

Ensure that your claims are reasonable and justifiable. Would it pass the sniff test for Canada Revenue Agency? Was it an expense incurred to earn business income? I think my favorite COVID-19 home office question so far has got to be: With the shortage of toilet paper, do you think I can justify expensing the entire cost of the bidet seat for my toilet? This client won tons of points for creativity and making me laugh out loud during a particularly stressful time in the accounting world. My advice: I would stick to the 10% household repairs and maintenance write off on this one.

If you have any specific questions or concerns about home office expenses for either your employees or yourself as a business owner, I’m always happy to chat. Send me a message at angela@rmllp.ca.

Have you heard of the T5018 slip?

Did you know that if your business is operating in the construction industry, you may be required to file an annual T5018 Statement of Contractor Payments with Canada Revenue Agency (CRA)?

The why

What is the reasoning behind yet another filing obligation with CRA you may ask? Well, it is estimated that the underground economy totals over $45 billion a year in unreported income in Canada and that the construction industry represents almost 1/3 of the underground economy. With those kinds of statistics, it is no surprise that CRA is taking action to combat this and one of their weapons of choice is the T5018.

The T5018 requires the payer to report to CRA who and what they have paid to subcontractors so that CRA can match those payments up to ensure that the income is being reported by the subcontractors.

So does this form impact you?

First, you need to determine if your business is considered to be operating in construction activities according to the list provided by CRA. Most of this list is the expected: drywalling, electrical, plumbing and carpentry; however, there are some less expected construction activities such as fencing and swimming pool installation.

Second, if you are in the construction, do have more than 50% of your revenue coming from construction activities? If the answer is yes, then you may have to continue to the third criteria.

Finally, did you make payments to subcontractors for construction services? Don’t forget that cash payments and barter payments are considered payments.

At the end of all of this if you are operating in the construction industry, have more than 50% of your revenues from these sources, and paid subcontractors, then you should be filing the T5018 annually with CRA.

What is the downside of failing to file these returns? The failure to file penalty is $25 a day with a minimum penalty of $100 and a maximum penalty of $2,500. And of course, these late filing penalties are not deductible for tax purposes.

If you have questions on the T5018 Statement of Contractor Payments, give us a call, and we will be happy to discuss it with you.

What constitutes a business expense?

I get this question ALL the time from my business clients.

As a general rule, expenses must be incurred with the purpose of earning business income. The expenses must be reasonable and justifiable. I’ve compiled a list of the more common expense questions with the answers to perhaps paint a clearer picture.

Are haircuts a business expense?

This is a solid NO.

Personal grooming costs are not deductible… even though you may have to look presentable and professional to meet with customers and clients. Let’s be honest, almost everyone who is working with the general public should be somewhat groomed. This is a human thing—not a business expense.

What about clothing?

Canada Revenue has a stance that unless the clothing is considered a uniform, it is not deductible. A loose definition of a uniform is something that a normal person would not wear to a mall. (I purposely did not mention Walmart here). This means that your business suits are not deductible. There are occasions where clothing may be permitted as an expense.

  1. Clothing that is specifically required safety gear is a reasonable and justifiable deduction.
  2. Clothing that contains your logo for advertising purposes would also be considered deductible.

Go ahead and order your next golf shirt, jacket or hoodie from a promotional supply store and be a walking billboard (I personally think this would be hilarious if you had a numbered company with no real logo).

Is a home office a business expense?

If you are working out of your home, yes, a portion of the expenses can be expensed. If you are paying rent at an official business location (or own the space), you likely cannot also deduct for your home office. If you are expensing a portion of your home for business purposes, do be careful not to be too aggressive with those claims.

I’d be hesitant to claim more than 10% of your homes’ costs (mortgage interest, property taxes, repairs and maintenance, utilities, insurance, security system, etc.).

If you’re claiming more, Canada Revenue Agency deny a portion of your principal residence exemption when you go and sell your home. In other words, if you claim 40% of your home expenses for your business, CRA would argue that 40% of your home was for not for personal use and therefore, you’d have to report 40% of any gains on sale as income on your taxes.

How are telephones a business expense?

If you still have a landline in your home, you cannot deduct this for business purposes… just the specific charges for any long-distance calls related to business. Your business cell phone can be deductible. Communicate with your cell phone provider that you have a business as certain carriers have special pricing for business owners.

What about conferences?

Here is a brilliant way to make your next trip to Vegas a business expense! Find a conference that is somewhat relevant to your business operations. You can deduct up to two conferences per year.

Paying your children or spouse a wage.

This one boils down to the expense has to be reasonable and justifiable.

  1. Can you pay your 3 year old $10,000 a year for sweeping out the garage?
    • No. This is not reasonable.
  2. Can you pay your husband $150,000 per year for sorting receipts?
    • Likely no—because you wouldn’t pay someone you weren’t related to that kind of amount.
  3. Can you pay your teen minimum wage for sweeping out your shop? Or pay your spouse fair market value for administrative work?
    • Yes. This would probably be considered reasonable.

Keep a detailed timesheet to document and justify the expense…just as you would to any other employee that wasn’t closely related to you or sharing your bed.

How do meals and entertainment factor into business expenses?

Yes, these are deductible expenses… but don’t go too crazy.

  • Go for lunch with that potential referral partner.
  • Buy a coffee for the potential new client.
  • Take the staff out to celebrate completing a major project.
  • Order dinner in house when key staff are staying late to get the job done.

Don’t try and expense every single meal you eat through your company. Similarly, your personal groceries are not deductible. Again, these expenses need to be reasonable and justifiable.

For example, an oilfield contractor would have a tough time justifying how Oilers season tickets were a legit expense to earn business income. On the other hand, if you typically dealt with many customers and relied on referrals, perhaps you could deduct some of those hockey tickets because you gave them to clients or associates as a thank you for referring new business. Documentation is key in this case. Who got the ticket and why?

Every business is unique. If you have specific questions of what types of expenses would be considered reasonable and justifiable for your operations, feel free to contact us.

Choosing the right account is important.

In a previous article, I discussed what CPA means and why it is important to choose an accountant with the CPA designation. Now I want to talk about other considerations when choosing an CPA that is the right fit for you or your company.

Does your accountant have relevant experience?

First, I would like to talk about experience.

  • How long have they been working in public practice?
  • Have they been around for many years or did they just decide to open up shop one day and may be gone the next?
  • What about the type of clients and industry they have past or current experience with?

When meeting with a potential new accountant, you should feel free to ask how long they have been in practice. You should also ask about their existing client base to find comfort that they have experience in your industry.

What is the accountant’s availability and communication like?

Another important consideration is availability.

  • Does your accountant return your phone calls and emails in a timely manner?
  • Do they have a partner or staff that can assist you with urgent matters if they are on holidays?

It is imperative to know that if something unforeseeable happens that prevents your accountant from continuing their practice that there is someone available to assist you.

Does the accountant have a strong professional network?

It can be beneficial to clients when an accountant has a team of people that they can rely on to take care of the needs of their clients.

  • What about their contact sphere?
  • Do they have other professionals they trust and work with regularly that you may also need?
  • If you find yourself in need of a new bookkeeper or a corporate lawyer, does your accountant have connections that may help you?

Are you comfortable discussing hard topics with the accountant?

Now let’s discuss comfort level.

You only need to talk to your accountant once a year so it doesn’t matter if you like them and feel comfortable with them, right? Wrong!

Your accountant should know all your confidential financial information and you should be comfortable to discuss this with them. The more your accountant knows about you, the more likely they will be able ensure that you are utilizing all the tax credits and deductions available to you. The more comfortable you are with your accountant, the more likely you also are to ask questions if you do not understand something.

It is important for a taxpayer to have some basic understanding of their financial statements and income tax return.

The partners of Richardson Miller LLP Chartered Professional Accountants have a combined 35 years of experience in public practice in several different industries. Our clients are important to us and we pride ourselves in our client relationships. We know that the world of tax is complex and confusing, so we aim to educate our clients in a way that is understandable and relevant to them.