BMP ACCOUNTING & TAX INC. - Blog

Using Your Car for Work?

4/16/2021

Are you self-employed use your car for work? Maybe you are an employee and your employer pays for all expenses related to the vehicle you use for work. A mileage log is an important step in using your vehicle as a tax write-off. Keeping poor records can result in an expensive blunder if CRA decides to come knock on your door for a surprise audit.

A detailed logbook is the best defense to support any vehicle expense used as a tax credit. For each business trip, you will need the following information:

date
destination
purpose
number of kilometers you drive

If you do not wish to keep a paper log, there are many apps on the market to help the task of keeping an accurate log. Please also remember to jot down the odometer reading on your vehicle at the start and end of the fiscal year.

As a side note, if you change your vehicle during the year, please keep all details of the sale of your vehicle and the purchase of your new one. Don’t forget to record the odometer reading on both your old vehicle and the new one!

Have more questions? Do not hesitate to contact us!

Tax Preparation - DYI or Not?

4/9/2021

Why pay for a professional tax preparer? I am happy you asked! It is so tempting when there are tax preparation software companies that boast that it is just like having an accountant guiding you through the tax preparation journey. Here is the thing, even with a tax software you can get yourself in trouble doing your own taxes or maybe you have more questions and cannot find the answer.

You are an employee and you owe a lot of money this year.

Being an employee, you rely on your employer to take off enough taxes so you won’t have to owe a large sum of money at tax time. However, there are some situations that arise that can result in you owing at the end of the year. Common culprits are having two or more jobs at once, the year following parental leave, and not updating tax forms with your employer after your life circumstances change.

You own an incorporated business.

There are many options in how an owner of an incorporated business can chose to pay themselves. You can elect to pay EI, pay yourself a salary, pay yourself a year-end bonus, payout your shareholder loan or pay yourself or others dividends. Your choice will affect your retirement options when you are ready to retire because if you do not pay into your CPP, you will have no CPP benefits during your retirement years. Do you have a spouse that you can split your business income with and pay less in personal tax and less corporate tax?

You are a sole proprietor.

Being a sole proprietor is most likely the greyest tax zone there could be. There are so many expenses that could be used as a business deduction. This is where a lot of folks get themselves in trouble. Your $60,000 kitchen upgrade is probably not an admissible business deduction if you work from your downstairs office and your work does not involve any cooking. A professional tax preparer can help you draw the line between a business deduction and a personal expense. Sure, you may pay less tax upfront, but in case of an audit, you will owe the tax plus interest and penalties on inadmissible expenses.

You have different investments or medical expenses

RRSP slips are fairly common but require understanding about the timing of the purchase of money invested in RRSPs. Slips that show the book value and disposition costs that require a T5008 generally need more expertise.
Medical expenses can be tallied up for a twelve-month period ending in the year of filing…it does not necessarily have to be for the calendar year.

Have more questions? Call us. We are always happy to hear from you.

Childcare and Tax Credits

4/2/2021

Do you have children living with you? Beyond the joy and the fingerprint smudges, they can also provide you with some tax credits if you have had to pay a daycare, day nursery schools, caregivers providing child care services, day camps and day sports schools, boarding schools, overnight sports schools or camps where the room and board is involved.

Keeping receipts is always necessary when you would like to include it into your tax return. We have encountered situations where the caregiver does not provide tax receipts to parents which means parents cannot use the child care expenses as part of their tax return.

There are different amounts that CRA allows for children of different ages and for children with or without a disability. For example, an amount of $8,000 per child can be claimed a child six and younger as opposed to $5,000 for children seven or over and $11,000 for children with disabilities.
Generally, the rule is for the parent with the lower income to claim the credit but there are some exceptions. The higher income earner may claim the credit if the lower income spouse was enrolled in an educational program, was unable to care for the children due to a physical or mental impairment, was in prison or there was a breakdown in your relationship.

If there is a shared custody, the parents can form an agreement to share the credit. However, if one parent is in primary care of the child or children, then they will receive the credit. If you are new to your shared parenting arrangement, Form RC66 should be submitted to CRA to apply to share the credit. If one of the parents enters into a relationship with a person who is not the parent of the child but has the lower income, they may be the eligible person to claim the childcare credit in that household.

Also important to note; child support payments cannot be used for the childcare credit.

Do you have more questions? We would love to help. Contact Us.

Turn Medical Expenses Into Lemonade

3/26/2021

Do you have medical expenses? Wondering if you can use them to reduce your tax owing? CRA has a long list to specify which medical expenses can be claimed on your tax return. Some examples of medical expenses that you cannot deduct are diaper services, non-prescription services, cosmetic surgery, vitamins and gym fees. If you are unsure, the best bet is to keep the receipt and check with us at tax time.

Maybe you did not know about the medical expense last tax season and you encountered the bulk of your medical costs between November and February ending in the tax year. The good news is that the timing for medical expenses does not have to be the same as the calendar year. However, the twelve months we choose to capture in one tax year has to end in that tax year. So, if we are filing your 2020 taxes, you must have paid for the medical expenses during a 12-month period that ends in 2020.

The timing becomes also important when we consider how much your total medical expenses cost you. The rule is that in order to claim medical expenses, they must total 3% of your net income (or $2,352 – whichever is less). One person per household (spouse and dependants) should claim the medical expenses.

Do you have more questions? We would love to chat.

Kindness Wrapped in a Tax Break

3/20/2021

Donating to a charity can make you feel like you are contributing to making a difference in this World, but can also give you some tax advantages. In most cases, you can claim up to a limit of 75% of your income…so the sky is essentially the limit.

Did you forget to claim your donations last year? No problem. You have five years to claim a donation. This may be to your benefit to accumulate multiple years because the charitable credit is greater for donations of over $200. You can also transfer your donations to your spouse (or vice versa) to maximize the tax impact of your donation.

The federal credit itself can make up to 29% of your income while the provincial income can reach up to 21% of your donation.

For example, Derek makes a $500 donation to a registered charity in 2019 and lives in Alberta:

1. The federal charitable tax credit (15% on the first $200 and 29% on the remainder) can be calculated as such: (15% x $200) + (29% x $300) = $117

2. The provincial charitable tax credit (10% on the first $200 and 21% on the remainder) can be calculated as such: (10% x $200) + (21% x $300) = $83

3. Derek’s total charitable tax credit is $200 Derek can use his $200 credit to reduce taxes owed that tax year. If he does not have taxable income in the current tax year, his best bet would be to hold onto those donation receipts for a year where his income is high enough to be taxable or his spouse can use the credit instead.

Do you have more questions regarding donations? Call our tax professionals. We will be happy to help you.

To Incorporate or Not Incorporate...

3/13/2021

To incorporate or not incorporate…that is the question that many clients have asked us. You started a new and exciting business and have been running it as a contractor but people have told you that you should incorporate because you can save on your taxes. The easy answer is, it depends. So let’s dig a little deeper.

Do you have employees? You can run payroll as a contractor. You do not need to be incorporated if you have employees. You do need to make your remittances just like a corporation.

Tax returns for corporations are more expensive than tax returns for a self-employed individual and you need to file an annual corporate registries return. Your losses can be harder to write off. If you are still an employee and self-employed and you incur a loss, this loss can reduce your total taxable income. As a corporation you need to apply the loss to another year that had or will have a profit.

So why incorporate? Being incorporated limits your risk of personal liability. If the corporation goes belly up, the creditors will come after the corporation’s assets. The most common debts are wages, payroll remittances, and GST/HST owed to CRA. If you have concerns about liability, incorporating could be in your best interest.

If you are planning to build a business to sell you may be interested in the lifetime capital gains exemption. This means that if you build a business from the ground up and sell it for less than $866,912 your total gain on the sale would be tax free!

When you compare corporate tax rates to personal tax rates, you will quickly notice that it is substantially lower at the corporate level. When you are running your business through a corporation, you have the choice to choose how much to pay yourself in a given year. For example, if you require $84,000 to support your lifestyle, but your corporation has a net income of $200,000 you can choose to leave $116,000 in your corporation to lower your personal income tax. As an employee of your corporation, you would pay taxes on $84,000 but as a sole proprietor you would pay personal income tax on the full $200,000.

Income splitting might be the most attractive aspect of incorporating. If your spouse is actively participating in your business, they could earn a salary from the corporation. If they are not active, dividends could be used to split the income with a lower-income spouse. This scenario would lower the overall family tax rate.

Could incorporation be for you? Contact us to know more.

RRSP & Your Taxes

3/5/2021

Clients often ask us to advise them on what they can do to pay less taxes. The best way to defer your taxes is to invest in an RRSP. An RRSP lowers your taxable income now so you can enjoy a tax savings in the current tax year.

The philosophy is that you reduce your taxable income by way of investing in your RRSP in years where your earnings should be higher – when you are employed. When you retire, you will be taxed on the money you withdraw. That is why it is called a tax deferral. You defer paying taxes on your income until your income should be significantly lower – when you are retired.

Contributions made from March 2nd to December 31st of the tax year will be included in the taxation year. Contributions made in the first 60 days of year (Jan 1st to March 1st) can count towards the taxation year, but you can elect to defer the contributions. Any contributions made after the first 60 days of the year will count towards the next taxation year.

Do you know your contribution limit? Do you know that you can over contribute to your RRSP? It is important to ensure that you do not contribute more to your RRSP than the balance in your unused contribution room. If you have a spouse and you have contribution room, it may make sense to contribute to a spousal RRSP for your spouse. You can either access this information by calling CRA, through your My Account Services or contact BMP Accounting and Taxes.

Homebased Businesses and Taxes

2/26/2021

Do you have a homebased business? Are you aware of the eligible expenses at your disposal to reduce your taxes owing? To start, a portion of your property taxes, your mortgage interest, maintenance, electricity, heating, internet and phone expenses can be used to lower your profit and therefore your tax owing if you use a home office. We generally discourage people to depreciate their primary residence for tax purposes because it could generate a sizeable taxable gain when you sell your house.

If you drive your vehicle to meet clients or travel to jobs (e.g. a plumber driving to a job), your vehicle financing interest, fuel, oil, insurance, registration, lease payments, depreciation of your vehicle, parking and maintenance can be used to lower your taxable income. It is important to note that proper record keeping is necessary in case CRA audits or disallows some or all of your expenses.

For each business-related trip, you must keep a record of the following items:

Date Destination Purpose Number of kilometers you drove At the beginning of the year, you should record the odometer reading and also at the end of the fiscal year. If you change motor vehicles mid-year, you must record the date of the change as well as the odometer reading at the time of the switch.

A simplified logbook can be used as well after establishing one complete year’s business use of a vehicle. After the complete year, you should keep a complete three-months records to use to prove that the use of the vehicle used is still typical. In some situations, we have opted to use a per kilometer rate to simplify the client’s record keeping.

There are so many different types of homebased businesses and each type comes with its unique eligible expenses. We would be happy to discuss them with you! Contact Us.

Should You Get Techy With It?

2/19/2021

Many of our clients come to us excited to gush over the details of their new business and ask us a great question – how should I keep track of my receipts? Out of all the questions that one could ask when getting into business, this is most likely the most important element in preserving the very survival of your business. With so many apps on the market, it can make it hard for a person to decide what to do. That is why we put together this list together for you!

Shoebox Method: We have tons of clients who either keep their receipts in a shoebox or in proper folders in a banker’s box. If you are keeping physical receipts instead of using fancy apps, the key is to file according to expense type. For example, all of your gas receipts should be in one folder while your supplies receipts should be in another folder. Folks seem to be tempted to file according to month, but filing receipts by type leads to more efficiency when compiling your financials at year end. Time efficiency on our end means savings on your bookkeeping bill for you.

If you keeping physical receipts, it will be important for you to come up with a system that does not result in your receipts falling on the floor of your car. You could keep a plastic envelope in your glove box or in your purse if you carry one. You may also want to have a reminder in your phone to bring in your receipts on a regular basis. Another money saver is to recap all of your expenses by type in an Excel spreadsheet for your tax accountant – if this step is too time consuming for you, don’t sweat it. We love what we do as much as you love what you do!

Getting Technical: The neat thing about apps is that you can download them onto your phone, hook them up to your bank account and let technology guide your financial reporting. If you are semi-tech savvy and your finances aren’t too complex, an app is for you. As soon as your receipts are uploaded to the app, there is no need to retain the physical receipts so it removes the danger of losing your receipts. It also spits out a financial statement at year end that your accountant can use to file your taxes. This is a game changer!

Wave (www.waveapps.com): The Wave app can be completely free to use – it is only if you chose to accept payments through Wave or if you require payroll that this software will cost you money. The one downside I see is that you have to download two separate app to manage your invoicing and your expenses. You can scan up to 10 receipts at once which can be handy. If you wish, you can invite your favourite bookkeeper/accountant to help you with your bookkeeping. Another bonus is that this is a Toronto based business.

App reviews :
Google Play: 4.5
Apple Store: 4.0

Foreceipt (www.foreceipt.com): Foreceipt can also be free to utilize with some restrictions most notably that if you would like to have access to other methods of uploading your receipts than through your phone, the ability to add more than 10 receipts per month, bulk bank information imports, recurring entries, year-end reporting and customer support. However, the cost for this software, at the time of the publishing of this article, starts at $3.25 USD per month. The app boasts that it grabs the information off of your receipt and posts it automatically, but we would caution you not to rely on this automation because we have found that the app can make mistakes.

App reviews :
Google Play: 4.2
Apple Store: 4.6

Quickbooks (quickbooks.intuit.com/ca/): This software has evolved so much since its inception. There are so many integration possibilities with other point of sales, the ability to turn PDF into useable data in Quickbooks format and many more features. Businesses that have plans to grow will require a more robust portable system such as Quickbooks should consider this option. The app itself is easy to use though you can only import one receipt at a time. The disadvantage is quick to prove useful when your uploaded receipts are more accurate than bulk uploads curated by automation by other apps. There is no free option to Quickbooks, but options are available as low as $5 per month. I would recommend speaking with us prior to taking the plunge because we may have options that may work better for you than the sole proprietor plan.

App reviews :
Google Play: 3.5
Apple Store: 4.7

Of course, if you do not want to do any of this yourself, but would love for us to keep track of things for you, we have other solutions that may work best for you. Do you have more questions? Please feel free to contact us for more information on how to get your financials organized!

2020 T4 Updated Information

2/5/2021

With deadlines looming near for T4 submissions due the last day of February, we felt it was a good time to review a few changes that have transpired during the most unique year most of us have experienced.

T4s have new reporting requirement where employment income and retroactive payments have to recorded according to the following time periods:

Code 57: Employment income – March 15 to May 9
Code 58: Employment income – May 10 to July 4
Code 59: Employment income – July 5 to August 29
Code 60: Employment income – August 30 to September 26

These periods align with COVID-19 benefit eligibility periods. A sidenote is that the day that the employee was paid may not necessarily be the same period in which the work was performed. For example, if an employee was paid on May 15th for work done during the period covering April 25th to May 9th, the income should be reported in period 58.

Do you have more questions regarding T4s? Contact Us.