Published on January 25, 2019
Slide1: A tax saving outlook for Canadian small businesses As a small business in Canada, there are many tax deductions that can be aimed at your small business spending, helping you minimize your tax burden and maximizer your business income. Take advantage of tax deductions : Tax deductions help you reduce your tax bill, and to take advantage of them fully, you must know that they are. Here are a few tax deductions small business owners in Canada can claim: Vehicle expenses: Lease payment, insurance, toll charges, maintenance (oil), and gas. Capital property: vehicles, computers, furniture, equipment, and computers Operating expenses: rent, insurance, heating, office supplies, and electricity. Media advertising costs: Canadian magazines, newspapers, in addition to Canadian market radio and T.V. Business management expenses: annual licence fees, business taxes, membership dues for professional organizations, online marketing fees, mail and delivery costs, and professional consulting services. Income-Splitting : Hiring your family for your business is an opportunity to take advantage of income splitting. Family member employees must be doing actual work supported by documentation and paperwork relating to their employment. In general, the benefits of hiring family members outweigh any bookkeeping headaches , where claiming their wages as a business expense and splitting your net income with them could potentially drop you into a lower tax bracket. Slide2: Get Tax Credits: The Canadian government has made available a host of tax credits aimed at specific sectors of the economy. Your small business could claim Investment Tax Credits (ITCs), here are a few: Scientific Research and Experimental Development (15% of all qualifying expenditures) Mineral Exploration Tax Credit (15% of qualifying expenses) Apprenticeship Job Creation Tax Credit (up to $2,000 per year and equal to 10% of the salary paid to an eligible apprentice for the first two years) Investment Tax Credit for Child Care Spaces (25% of the cost of creating spaces with a maximum credit of $10,000 per space created) Atlantic Investment Tax Credit (10% of the value of purchase price of new buildings, machinery, and equipment used in farming, fishing, logging, manufacturing, and processing). Meet Deadlines: Avoid stress, trouble, fines, and the CRA, file your taxes on time. For small businesses, your taxes are not due until June 15, and any amount owed must be paid by April 30th. Maintain Complete and Accurate Records: Regardless if you're profitable or you awe taxes, keeping records and receipts are necessary when your taxes are filled. These records help prove your deductions are legitimate. For professional Tax accountants in Toronto & Mississauga, call us at +1 (416) 900 3826 & visit us at https://www.gtaaccounting.ca Slide3: CRA Tax audit procedure: Tax audits are about the last thing you happening to you, it is a frightening experience and it can also be very costly. CRA auditors will seek your books, records, receipts, and bank account statement. Questionnaires could be asked to be filled out, and any declared information that is wrong regardless if it was due to error or other reasons, it will be used against the taxpayer. Should that happen, one of our top CPAs at GTA Accounting will be involved and help you through the process should an auditor contact you. When you get audited, first you’ll receive a notice from CRA regarding their intention to audit. The notice typically outlines the preliminary information that is required from you with a possibility for future requests asking for more information. Typically speaking the beginning of an audit is the best time to obtain legal representation; auditors are generally not very reasonable and may not listen to your explanations and reasonings for the filing the returns the way you did. Our top CPAs here at GTA Accounting will speak on your behalf and begin the legal work necessary to remove any issues relating to your tax return, especially if you do not accept the outcome of an audit. In this case, you have 90 days to appeal by filing a notice of Objection, and as always one of our top CPAs at GTA Accounting will be readily available for any sort of assistance in filing your income tax objection. In Canada, there are over 350,000 tax audit and review actions concocted annually by the Canada Revenue Agency. Around 15,000 of these tax audits focus on ‘cash only’ businesses, also known as the underground economy, and around 35,000 audits are tax shelter audits. There are several reasons for why the CRA might want to audit you: 1: Random selection 2: Third party tips 3: Comparison of information on returns to information received from third-party sources 4: Past history of non-compliance Slide4: The Canadian Income Tax is based on “self-assessment”, the taxpayer is solely responsible for filing their own personal tax, and the CRA performs audits in order to maintain the integrity and functionality of the ‘self-assessment’ tax system. Here are a few examples of issues that may arise in an audit that would cause a taxpayer to be reassessed by the end of an audit: Overstated expenses Overstated deductions Overstated credits Underreported or unreported earnings Unreported offshore income Unreported offshore assets Credits, such as charitable donations not supported by receipts As such, it is imperative that you keep completed records detailing every expense or deductions claimed on your tax return. If the CRA has approached you with an impending income tax audit , do not hesitate to contact our tax accounting professionals in Toronto & Mississauga. Call us at +1 (416) 900 3826 and visit us at https://www.gtaaccounting.ca/ Slide5: Tax implications for Canadians selling U.S. property There are a few things Canadians selling their U.S property should be aware of: 1: The 15% holding tax - As a Canadian or a non-resident of the U.S., you are subject to U.S. tax laws when selling your U.S. property. Regardless of the cost of your property, a 15% tax must be paid on the sale price payable under FIRPTA rules (Foreign Investment in Real Property Tax Act of 1980). Note: The withholding tax paid by Canadians on the sale of property in the U.S. can be reduced by applying for a withholding certificate before transferring the property. You should apply under two conditions: if you expect your U.S. tax liability to be less than 15% of the sale price and you must indicate what amount of tax that should be withheld by the property’s buyer instead of the full 15%. If a certificate is filed before a transfer of property, withholding tax may be decreased 2: File a non-resident U.S. tax return: A U.S. income tax return form 1040 must be filed with IRS reporting a selling price exceeding the original cost. 3: Long-Term Capital Gain: Long-term capital gains receive favourable tax on properties owned for more than one year prior to the sale. The long-term capital gain is calculated based on your tax bracket. For example, you purchased property in 2010 for $50,000 and sold it 6 years later for $150,000, you’ll be taxed a long-term capital gains tax of 15%. 4: Canadian Income Tax on the Sale of U.S. Property: As a resident of Canada, you are liable to pay tax on your worldwide income including capital gains of U.S. real estate sold calculated in Canadian dollars. To avoid double taxation, a foreign tax credit can be claimed on the Canadian tax return on the capital gain realized on the sale of a U.S. property. In sum, you should always be aware of the cross-border tax implications and keep completed records of any purchase of property and any receipts for capital improvements made therefore the U.S. can be determined much easier in the event of a future sale. Furthermore, apply for a U.S. withholding certificate on the sale of real estate to lower withholding tax. Once the property is sold, don’t forget to file non-resident U.S. tax return to and claim a foreign tax credit to reduce Canadian tax owing. And finally, make sure a U.S. tax return is filled for every disposition of a U.S. property. If you are ever unsure of what steps to take or require any sort of assistance, do not hesitate to contact our top CPAs here at GTA accounting . Slide6: Incorporating your Business in Canada and Tax Advantages Incorporating your business may lead to lower taxes depending on your situation and in which province you operate. Once your business generates more money than what is necessary for living expenses, in this case, incorporating can be a tax saver. However, incorporating your business can be a bit costly and with it comes plenty of additional paperwork. It is often not a good idea incorporating when you start your business, but once the business becomes profitable, the benefits of incorporating can be reaped. Furthermore, you have the option of incorporating provincially or federally, your choice depends completely on the intention of your business and whether it'll operate in more than one province. How Tax Savings Work: In general, corporate tax rates are lower than those of personal ones. For these profits to be reaped, the business must generate a substantial profit. If one relies on the profit the company earns to cover their personal living expenses, this means your company must pay enough to live and therefore you must pay personal income tax on that amount, hence eliminating the advantages. To put it simply, if you are earning more than you need to live on, incorporeality can be advantageous. Income Splitting and Dividends: Splitting your income with family member employees can lead to significant tax advantages beyond those available under reduced tax rates for corporations. Hiring a spouse or a child means that their income can be deducted as an expense while the family member pays tax on their own personal chime rates. In the event where you can’t hire faintly member for work, you can make them shareholders and pay them dividends, which are taxed at a reduced rate. The corporate is accountable to pay taxes on this money but generally, pending on the personal income of your amity members and the province of residence, there might be an overall tax saving. When it’s time to sell your business: As a corporation, you can sell the shares of your corporation to another person or firm. This means that if your corporation is holding real estate and you sell the shares of your corporation to the potential buyer, then the buyer can save on land transfer taxes. This will make the deal sweeter for the buyer and he is more likely to do business with you. For professional Tax Accounting Professionals contact us at +1 (416) 900 3826 and visit us at https://www.gtaaccounting.ca Slide7: Election of Quick Method of Accounting to calculate GST/HST for IT Consultants The Quick Method: The quick method is a simple way for small businesses to calculate the tax to be remitted to the CRA for GST/ HST purposes . With the quick method, you still collect the HST at the 13% on taxable supplies of goods and services but will only remit 8.8% to CRA. The rest of the HST will be income for you. Remittance Rate: The ammonite to be remitted to the CRA is calculated by multiplying a single applicable rate with the number of taxable supplies (including GST/HST). The remittance rate depends on either one of the following: If the taxpayer is in the service, retail or manufacturing business In which province the business has a permanent establishment In which province the supplies are services provided or supplies made The Quick Method can be used by small businesses with taxable sales of $400,000 or less. However, this method is limited, as such, accountants, lawyers, and charities are prohibited from using this method of accounting. Therefore, in order to elect the Quick Method, you must complete and send from ‘GST74 - Election and Revocation of an Election to Use the Quick Method of Accounting’, to the Canada Revenue Agency. This form can be accessed and downloaded from the CRA website. For your accounting needs, our CPA’s here at GTA accounting will make themselves available for you when it comes to sorting help or assistance in regards this method of accounting, so please do not hesitate to contact us .