Are True Business Losses Tax Deductible?

At the present time, there is no dearth of people who aspire to start their own business. A majority of them plan to do so with the intention of earning a profit. That is to say, they invest their money with the aim to earn a greater amount of money.

However, every business is a risky venture – it involves a number of risks. While sometimes it may pay dividends, it may also result in lesser income than the expenses associated with it. What happens when your business expenses far exceed your business turnover? Are you required to pay taxes even as you make losses for months? Read on to get the answers to these pertinent questions.

What Happens When You Run Into Business Losses?

Whether it is start-up costs or a reduction in sales due to a slow down or a loss associated with the expansion of business operations, monetary losses are a part and parcel of small businesses. Every small business owner meets this fate at some point in time in their career.

Speaking of losses, it is generally believed that small business owners face two kinds of losses – non-capital losses and losses linked to business investment. These are discussed below.

Non-Capital Loss

When the expenses of a small business owner surpass their income in a particular year, the losses related to it are called non-capital losses. Such losses also include the losses incurred from a business, a property of employment. These losses can be used to offset the income from various sources like a commercial enterprise, retirement, job and other sources.

Depending on whether you had this kind of loss in a year post 2005 or prior to March 23, 2004, there are two different procedures to apply and forward it in the subsequent year. While in case of the former you can carry it 3 years before and 20 years down the line, in the latter case, you can carry it three years back and seven years forward. Also, you can forward it 10 years and place it three years preceding the date if you encountered a non-capital loss after March 23, 2004.

Consider applying your non-capital loss to a preceding year if any of the following conditions or all the conditions are applicable to your case:

  • You think the tax in the preceding year was higher than the tax in the subsequent years
  • You do not anticipate making a gain in the upcoming years
  • You are thinking about merging or selling your business in a few years down the line
  • If you think rolling the non-capital loss of the current year to a previous year will bring in the desired cash flow which can stage a recovery to your business.

Here’s an important tip in this respect: if you wish to file a non-capital loss alongside previous year’s return, it is necessary to do so in the year of suffering the loss, otherwise you will only be able to forward it thereafter.

Business Investment Loss

In the eyes of the CRA, making a loss from running a business and doing so after making a monetary contribution to a business are two different things. In other words, the CRA counts only those people as business owners or partners who alongside spending a considerable amount of money also devote their time to business operations.

The losses resulting from an investment into a business venture is a business investment loss, according to the CRA.

Thus, it can be concluded that actual business losses are always tax deductible. They serve as a strategic way to reduce the tax burden on you. On the flip side, if you file losses after losses for several years, it can backfire as in such a scenario, you could be at a risk of an audit by the CRA. Furthermore, the CRA can also deny the loss claim filed by you under the impression that your business is more of a hobby than a serious venture aimed at generating a considerable income.

If you have tax-related questions regarding business losses, do not hesitate to contact our business advisors in North York, Ontario. They are happy to help you with it.

What is Considered While Calculating Mileage Tax Relief

Do you use a vehicle to travel from one place to the other place? If yes, then your mileage can result in a tax relief. The sound knowledge of the number of kilometres travelled by you for business purposes can come in handy in the calculation of deductions related to the use of your business vehicle. Precise monitoring of mileage can assist you in saving time at the time of submitting an income tax return.

Why is It Necessary to Monitor Mileage?

Noting down the odometer readings in a timely manner is the sure-fire way of presenting the data about how you have used your vehicle for business purposes to the CRA. For best results in this regard, it is strongly recommended that you should note down the odometer readings on a real-time basis to prevent the possibility of any discrepancy. Keeping a logbook handy can help understand how your vehicle was used during business travel or trips.

How to Mention Mileage to Claim Tax Relief?

Usually, the Statement of Employment Expenses is used for the purpose of reporting vehicle expenses. In order to claim the vehicle expenses, it is important on the part of the owner of the vehicle to report information about it including the following details:

The make, model and the year in which the vehicle was manufactured

  • Total kilometres for which the vehicle was driven throughout the year for business purposes
  • The total distance covered using the car (in kilometres) throughout the tax year
  • The calculation of your motor vehicle expense deduction

In addition, the following information should also be furnished:

  • Maintenance and repairs
  • Fuel
  • Licence and registration
  • Insurance
  • Applicable interest
  • Capital cost
  • Leasing
  • Extra costs
  • Mileage allowances
  • Prescribed rate
  • Automobile benefit

Calculation of Motor Vehicle Expense Deduction

Once you work out the total amount of money which needs to be taken into consideration for the calculation of the vehicle expense deduction of your motor, the rest becomes simple and easy. All you need to do is apply the following formula:

Motor Vehicle Deduction = (Business kilometres/total kilometres) x total vehicle expenses

Allowances Related to Mileage

Regardless of whether or not a vehicle is owned by an employee or their employer, the CRA applies specific rates for the consideration of reasonable per-kilometre allowance. It applies whenever an employer pays for the reimbursement of mileage for an employee.

It is necessary to stay within the rates as specified by the CIA to keep the motor vehicle benefit tax free. Further, it is not necessary on the part of the employees to make a mention of the allowance while reporting the income at the time of filing an income tax return. Any expense which does not come under the allowance is liable to attract taxes.

According to the CRA, an allowance is reasonable when the following conditions are applicable:

  • The allowance is worked out using the number of business kilometres for which a vehicle was driven in a year
  • The amount of money paid towards rate per kilometre is fair and reasonable
  • The employee has not received any reimbursement with regard to vehicle expenses.

Automobile Benefit

At the time of determining an automobile benefit, which is provided by an employer, the calculation is done using the standby charge. The following aspects are taken into consideration:

  • Mileage
  • Operating expenses
  • Costs
  • Fuel
  • Repairs

For more information about CRA tax audits, problems & representation in North York Ontario, contact us now!

How the CRA Calculates Business Taxes Related to Partnerships

According to the Canadian tax laws, any business which is run by two or more individuals in collaboration with one another is referred to as a partnership. If you are a part of a registered partnership business, here’s what you need to know about it.

Entering a Business Partnership

Are you a part of a business which involves one or more persons other than you? If yes, then chances are you may have wondered how it will have a bearing on your individual tax returns. Until the time the incorporation of your company is complete, you are required to submit your taxes individually in accordance with the Canadian tax laws. However, you need to consider certain other aspects in case your business profits are shared between you and your partner.

Starting a Partnership

Before beginning a partnership, it is imperative that you conclude a contractual agreement of your partnership business. This will make it easy for you and your partner or partners to understand how the business revenue, expenses and tasks would be divided among yourselves. Additionally, it will also give you a clear indication of what amount of money you need to declare while filing your individual tax return.

While the laws in Canada do not mandate an agreement to operate a partnership business, it is strongly recommended because it provides an individual with greater protection whenever there is a dispute among the partners. It goes without saying that a written agreement is more credible than a verbal agreement among the partners.

Having an agreement in writing will also help protect both your property and income from legal issues. If required, do not hesitate in seeking professional help in this connection.

Taxes and Income Associated with A Business Partnership

Contrary to corporations, a business partnership does not comprise tax obligations. All you need to do is report your share of profit from the business in the form of self-employed income. Report it on lines 135 and 143 while filing your tax return.

Additionally, you are also required to fill out for T2125 for the statement of your professional or business activities. In case you are a part of a business with assets valued at more than$5 million, you are required to fill out for T5013.

If the total turnover generated by your business surpasses the margin of $30,000 annually, you should collect GST/PST/HST. Ensure the timely payment of your sales tax bill on either a quarterly or yearly basis.

For any questions related to filing tax returns or tax audit and reassessment in North York Ontario, contact us now!

What Comes Under CRA Business Income Tax?

In Canada, it is important for self-employed individuals to know what constitutes business income according to the CRA. This is important in the calculation of taxable income.

Here is what you know in this regard.

Business Income

No matter whether you deal with goods or services, the federal government makes note of any amount of money that goes into your pocket without an employer paying for it. Regardless of whether your business is registered or you declare the income generated from it, the federal government makes note of all your earnings – whether small or big. When demanded, you are required to give a clarification regarding your profit intentions. Also, it is necessary to furnish evidence in support of your explanation.

In a nutshell, the CRA considers the income which comes from your profession as a proprietor, small business owner and business partner as your business income. The amount of money which you earn in the form of wages or salary is not taken into consideration in this connection.

The Sources of Business Income

Apart from the direct payments originating from the client’s end for goods and services, the CRA also mulls over some other sources of income of self-employed individuals. These are discussed below.

  • Bad debts
  • Vacation trips
  • Reserves
  • Grants and subsidies
  • Bartering

In order to develop a better understanding of business income for making tax decisions, it is strongly recommended that you check with your tax professional.

Reasons Why You Should Know Your Business Income

For the calculation of the professional or business income of self-employed individuals, T2125 form related to the Statement of Business Activities is used. This procedure is extensively used in the calculation of business or professional taxes of those individuals who are either sole proprietors or have entered into a business agreement with 1-5 people.

Work out your net income from your gross income by subtracting different business expenses such as your business mileage, advertising, home office, rent and so on. Make sure you do not miss out on any income and mention them while filing your return to avoid penalties from the federal government.

Records to Be Kept for Business Income

The CRA looks for records pertaining to your professional income as well as expenses. Though it accepts different kinds of financial statement, it seeks original copies of the following documents:

  • Receipts for expenses
  • Contracts
  • Sales invoices
  • Cash register tapes
  • Fee statements
  • Other records related to business income

Looking for a comprehensive solution to accounting services in North York Ontario? Get in touch with us now!

Tips to Compute Your Taxes for The First Time

If you are self-employed and are giving it a thought to opening your account of doing your taxes, there are some tools to work out the outstanding amount of money in the form of CRA taxes. Here are the best Canadian tips for the calculation of taxes.

Your Best Bet to Estimate Your Taxes

Regardless of whether you own a small business or are self-employed, there is good news for you. Now, you can minimize the outstanding taxes towards the conclusion of a year by filing a claim for the expenses.

Proper planning will help you streamline the process. Note down your yearly expenses on a spreadsheet and keep it handy so you can use it whenever the need arises.

If you work in an office, your expenses may include advertising expenses, inventory and supplies. In the event of working from home, you need to deduct a percentage of your utility bills and rent.

Having a system in place to monitor your invoices can be of profound importance. If you wish to record the information in a spreadsheet, you can use popular options like Quickbooks and Freshbooks.

After adding up the amounts in the last year, deduct both your expenses and RRSP contributions prior to March 1 of the same tax year. By following this process, you will be able to work out your net income based on which, you can calculate your taxes.

You can further ease your tax burden by claiming certain other deductions. However, the deduction of your expenses plus RRSP contributions will keep you posted with the actual balance you owe to the CRA.

How You Can Calculate Your Taxes

Though the internet abounds with tax calculators, the catch is that they calculate the taxes in the same way as it is done in case of a salaried employee. If you are self-employed, chances are you might not like it to be calculated that way.

Do not forget to take your previous year’s income into account while getting the estimate of your CRA taxes.

If you wish to figure out the taxes without using a tool, bear the following things in mind:
a> Taxes are calculated only on the amount of money which exceeds $11,635 from the earnings of the previous year
b>Federal taxes are charged at 15% on $46,605 of your income
c>For income generated up to $55,900, self-employed Canadian individuals are required to contribute 9.99% to Canada Pension Plan. For the residents of Quebec, it is 8% on earnings up to $55,900

For queries on the ins and outs of CRA taxes, get in touch with our business advisors in North York Ontario.

How You Can Submit a Canadian Tax Return

The submission of tax returns can be a complicated affair. Nothing illustrates it better than the procedure of working out various deductions and tax rates related to CRA taxes. For the sake of convenience of Canadian Taxpayers, some easy methods to submit the tax return in Canada are given below.

Some Simple Methods to Submit a Canadian Tax Return

While doing your taxes may look tedious from the outset, it is not rocket science. As a taxpayer, you have three ways to file your CRA tax returns. Read on to find out which one suits you in the best possible manner.

Filing Your Taxes Online

A majority of Canadian taxpayers can pay their taxes on the internet using Netfile. You can use the online service if you meet the following criteria:

  • You are a resident of Canada
  • You have filed your tax returns before (at least once)
  • You are either a Canadian citizen or reside in Canada permanently

If you meet the requirements listed above, the rest is easy. All you need to do is perform some simple steps as indicated by your tax preparation software such as downloading the copy of your tax filing. Once this is done, you need to enter your Social Insurance Number to log into Netfile.

As the residents of Quebec are required to file two tax residents, they are required to perform an additional step. In order to ensure that the process is carried out without any error, it is necessary to ensure a proper alignment between the right tax return and the right service.

Filing Your Taxes by Mails

You can file your taxes by mail as well. If you make up your mind to mail your taxes, you are required to mail it to the address provided on T1 return. An important thing to note here is that you are required to submit your return by mail if you happen to be a student or have filed bankruptcy in last year’s return.

As for the tax returns, you can work them out using tax preparation software like Ufile, TurboTax or any other program. Thereafter, take a printout and mail it to the Tax Centre of your zone. If you are living in Quebec, send a print out of your provincial return via mail to Revenu Quebec.

Using The CRA Auto-Fill Service

If you have ultra-simple returns for filing, you might want to make use of the CRA auto-fill service instead of the other options. By virtue of this service, you can complete some parts of your tax return without the need for manual effort.

Due to the fact that the government already knows about your RRSP contributions and T4s, the information can be filed automatically.

Want detailed information about the procedure concerning the submission of CRA tax returns or Tax audit and reassessment in North York Ontario? Contact us now!

A Guide to Paying Your Tax by Instalments

If you happen to be a self-employed individual, your wages may not involve taxes. However, according to the tax laws in Canada, every self-employed individual who belongs to the tax bracket is required to pay tax by instalments.

As a matter of fact, there are some vital aspects pertaining to the filing and payment of CRA taxes by instalments which you should know. These are discussed below.

Who are Required to Pay Taxes by Instalments?

People who collect their wages without any tax deductions are required to pay their taxes by instalments. Self-employed earning individuals who generate income from investment or rental, pension payments or from multiple jobs (from two or more jobs) belong to this category. However, an important point to keep it mind is that it also includes people whose taxes are not sufficiently withheld within a year.

How to Find Out If You are Required to Pay Your Tax by Instalments?

Before figuring out whether or not you should pay out your tax by instalments, you should have the following information:

  • Province of residence
  • Net tax owing

With the above information at your fingertips, you are ready to determine if you should pay your tax by instalments. Consider paying your tax by instalments if the below-mentioned factors apply in your case.

  • Net outstanding tax for the current year is above the threshold of your province of residence
  • Your net tax for the last two years were above the threshold for your territory of residence

If your owing for the current year happens to be equal to or less than $3,000, the requirement to pay taxes by instalment does not apply to you. For residents of Quebec, the margin is $1,800. However, some specific requirements exist for those who generate income from farming or fishing. It is a good idea to consult a qualified tax professional to gain a better understanding of tax requirements if you generate income from farming or fishing as it is a little complicated.

The Due Date for Tax Instalments

Generally, tax instalments are due on the following dates:

  1. March 15
  2. June 15
  3. September 15
  4. December 15

CRA Reminders

The CRA sends instalment reminders to select taxpayers. Generally, it sends instalment reminders to select taxpayers in the following ways:

  • February for the tax payments to be made in March and June
  • August for the tax payments to be made in September and December

If you have questions regarding CRA taxes get in touch with our business advisors in North York Ontario.

What’s new in CRA tax filing in 2018?

Each year, income tax slabs and tax credits undergo a change – thanks to the changes introduced by the CRA from time to time. The main objective behind the introduction of changes to the existing tax practices is to ensure the average Canadians are able to reap the benefits of improvement in services.

Read on to find out more about the new aspects related to CRA taxes in the current year.

The Deadline to File CRA Tax Return

The deadline for filing CRA tax in 2018 was April 30. If you, your common-law partner or spouse are self-employed but have not filed the return yet, do not worry. You still have time until June 15, 2018. However, the outstanding balance will still be due April 30.

Late filers will have to pay a 5% penalty on their unpaid balance. In addition, they will also need to pay 1% of the payable balance for the number of months by which their return is delayed, up to a maximum of 12 months. There’s more – unsettled balances also attract an additional penalty in the form of interest charges that are calculated on a daily basis. These charges apply to late-filing penalties too.

Revision to Canadian Tax Credits That Will Come into Effect in 2018

As for Canadian tax, a new credit, coupled with two revised credits, will be applied in 2018. It is important for Canadian taxpayers to know about it. Here’s what you need to know.

The Canada Caregiver Credit

The Canada Caregiver Credit is the substitute of the family caregiver credit. As a non-refundable tax credit, it is for the infirm members of a family who are above 18 years of age but are dependent on the earning member of a family. This may include a spouse, parent, children or other members of a family with physical and mental challenges. If any of your family members meet this criterion and you are living with them, this credit is applicable to you.

The Disability Tax Credit (DTC)

Though not new, the nurse practitioners in Canada can certify the Disability Tax Credit.

The Medical Expenses Tax Credit

This retroactive credit covers the expenses incurred in conceiving a child. Even as you are not subjected to other medical conditions, the credit still applies. Because it is retroactive, you can request a virtual overhaul of your income tax returns so as to include expenses related to fertility.

New Services Pertaining to Tax from The CRA in 2018

To do away with the tedious paperwork involved in filing a paper return in 2018, the CRA will send income tax forms to Canadian taxpayers who file paper returns. Yes, that’s right – you need to worry about going to Canada Post or other similar locations to collect your printed tax guides or forms anymore.

For those who have been filing electronically thus far, they have two options – they may either download forms on the internet or request for paper copies from the CRA.

Submit Your Tax Returns Over The Phone

For taxpayers who belong to the low-income of fixed income group, the CRA had introduced the concept of filing taxes over the phone by answering a few questions using an automated service. The simple, secure and free service was only intended for select individuals who were available until April 30, 2018, from February 26, 2018.

The CRA BizApp

As a major step to facilitate mobile users among small business owners, the CRA has launched the new CRA BizApp. Available for 21 hours a day, it lets users access the following accounts;

  • Payroll
  • Corporation income tax
  • Excise duty

GST/HST accounts, except for those that are controlled by Revenue Quebec

The good thing about this app is that viewing the outstanding balances aside, it also allows for the settlement of the expenses, check the transactions and expected GST/ HST returns, and seek information about them. You can get access to these services by signing in with the login credentials offered by the CRA. If you have not got one yet, you are required to register for the same.

Other Improved Services

Besides the ones listed above, certain other services have also undergone an improvement in 2018.  These include the following:

  • Adjustment of tax returns using ReFILE
    Additional information about an account via email
  • Enhanced security of accounts with automated alerts
  • Payment of taxes in person’
  • Auto-populated feature to file one’s return

However, to access these popular services, a user needs to be registered for My Account and also CRA’s mailing service on the internet, as soon as they receive their notice of assessment. If you have questions and doubts regarding filing your CRA taxes, or tax audit and reassessment in North York Ontario, feel free to contact our experts at your earliest convenience.

Should You Get Help with Tax Returns or Do It on Your Own?

In the current year, the Canadian taxpayers are required to settle their outstanding payments related to taxes by April, 30. If you are not certain about whether you should do it on your own or hire an accountant for the purpose, consider the following points to come up with an informed decision.

How Doing Your Own Taxes Can Benefit You

The prominent advantage, out of the numerous advantages, of doing your own taxes is that it eliminates the need of paying an additional amount of money to an accountant. At the end of the day, this translates into more savings.

Generally, you can assign your accounting task to an assistant at a nominal fee of $40. However, it can be more depending on the complexity of tax situation. For instance, you might like to employ a CPA which can amount to an exorbitant fee.

There is an additional benefit to being self-dependant in filing your tax return: because it’s you who will be doing the job, you can rest assured there will be no problem even as you submit your CRA tax return at the eleventh hour. Even as you need a little more, this will allow you to organize your receipts or itemize your expenses.

Plus, you can work out the maximum amount of tax deductions. While it might necessitate a little more research, the end result will be fruitful – you will be able to exercise more control over the process.

Recruiting an Accountant

No matter how well you scour through the online resources for information about CRA tax returns, your understanding would still not be able to surpass that of a professional accountant. That is to say, the latter, with their sound knowledge and experience, would be able to handle the task in a more proficient manner than you. If an accountant takes charge of submitting your returns, you will more likely feel at ease and will be able to focus your attention on the other important things.

While the return filed by you might have some errors, the one done by a professional accountant would be free of errors. Even in the unfortunate event of a random audit by the CRA, you can settle down and rest easy with the thought that all is well with the submission of your tax return.

Which is The Better Option?

Whether you do your own taxes or hire an accountant, each will have its own share of advantages. While the former leads to more savings and control, the latter is more secure and convenient.

Those who attach more importance to time than money believe that utilizing the length of time spent on the task could generate more wealth if used for some other productive purpose.

However, if you happen to be one of those individuals who have a lot of time in hand, devoting a few minutes or hours to the task would not be a big deal.

Thus, considering the amount of money and time at your disposal is your best bet to find out whether you can take charge of filing your taxes or need help with it.

For guidance or consultation on accounting services in North York Ontario or anything related to taxes, feel free to contact us.

Use These Tools to File Your CRA Tax Returns with Ease

How do you file your taxes? Do you do it yourself using tax software or does your accountant crunch the numbers for you? Regardless of the manner in which you file your taxes, these tools can literally save your life while filing CRA tax returns.

Luckily, despite not being a CPA, you can keep an eye out for your expenses and figure out what amount of money you should set aside for taxes linked to your business – thanks to the plethora of tools and applications available at your disposal.

Use Office Lens to Back up Your Receipts

Whether you are a small business owner or a freelancer, you can deduct all kinds of business expenses. However, a comprehensive system of monitoring the receipts is necessary in order to be able to do this smoothly. Generally, people use paper receipts in this regard. The only problem with paper receipts is that they tend to fade over time which renders them useless in practical situations.

A smart way to prevent such issues is to use applications such as Evernote or Lens. Not only do these useful apps allow a user to take photos, they can also refer to it later on as and when the need arises.

Automate Necessary Tax Savings

Time is money. In everyday life, no one realizes it better than those who are self-employed. Given the fact almost all working professionals keep busy in their tight schedule, the automation of vital tax savings has become the basic requirement for performing difficult tasks at the present time. For instance, the use of a mileage tracking app like TripLog to track and lag your miles can make you eligible for tax relief for the distance covered for business purposes.

Develop an Understanding of Canadian Income Tax Brackets

Do you wish to save thousands of dollars with your taxes? Well, who doesn’t? All you need to do is get familiar with different income tax brackets applicable to Canadian Income Tax Structure. You can bump into a lower tax bracket by contributing a little more to your RRSP in the coming year.

Calculate Your Take-home Pay and RRSP Savings Using Online Calculators

If you are one of those freelancers who work on in-house contracts, sometimes you might wonder what your hourly rate is. One way to address this issue is to use online calculators designed for the purpose.

Also, you might not like to do a job forever no matter how much you love to do it. RRSP program in Canada can help you make savings for retirement.  You can use an online calculator to do the same.

Irrespective of whether you are learning these things or have already become familiar with them, chances are you might feel the need for professional help. No worries, though. Speak to our business advisors in North York Ontario to get help with it.