All Categories - BMP ACCOUNTING & TAX INC.

Incorporated Employee - What is that?

6/1/2022

ContactA trend these days is for companies to ask their employees to incorporated themselves. Why? Because the company is no longer required to remit any source deductions on your behalf (think CPP and EI), they do not need to provide you with a benefits package, no overtime payout, vacation pay and there is less red tape to let their employees go.

The incorporation process is relatively easy and quick and it can seem attractive to become an incorporated employee (also known as a Personal Services Business), however, the tax implications of a PSB are different than other types of corporations.

Tax Rate: PSBs cannot claim the small business deduction and are taxed at the full rate. In fact, a PSB is taxed an additional 5% at the federal level. PSBs are taxed at a 33% federal rate as compared to small business corporations that enjoy a low federal tax rate of 9%.
Limited Tax Deductions:
1. Salaries and wages paid to the incorporated employee (including CPP, EI, Pension Plan Costs and other benefits).
2. Allowances paid to the incorporated employee.
3. Expenses for which the incorporated employee would have been allowed to deduct as employment expenses.
4. Legal expenses to collect the amounts due against the services provided.

In order to be a PSB, one must pass two important tests:

Specified shareholder: the incorporated employee must be a specified shareholder of the corporation. In plain language, the shareholder must be non-arms length such as yourself or your spouse.
Pass the test of employee / independent contractor. If by definition, you are deemed to be an independent contractor, you are not a PSB.

If you are offered to become an incorporated employee (or if you are not sure), please talk to us for some guidance. We are happy to help!

Personal or Business Expenses?

4/15/2022

When you are your own boss it might seem like you are always working even if you may have more flexibility to take time off…so it is not surprising that the line between personal or business expenses may fall into the grey zone. The general rule of thumb is the golden question: did you use what you purchase to earn income? If you can answer yes reasonably, then it is likely a business expense.

Here are some examples where we see the lines get blurred:

1) Meals and Entertainment: dining out with friends may seem like the easiest way to pass a personal expense as a business expense. However, we would caution you against this. We recommend that our clients write the name of the person they dined with and the purpose of the dinner on the receipt in case of a CRA audit. Irregularities in your meals and entertainment expenses may also raise eyebrows (e.g. you earn $50,000 per year, but your meals & entertainment expense tally up to $40,000 – it does not seem reasonable).

2) Office Supplies: most people need paper and ink to print invoices, reports, etc. However, your child’s school supplies cannot sneak into your office supply expense. The other issue we see with office supplies is the purchase of, for example, a computer. A computer generally cannot be used as an expense for your business. It needs to be depreciated over a couple of year.

3) Travel: There are some businesses that travel makes up the majority of the costs of running your business. However, a business trip blended with a family trip may be treated differently for tax purposes.

Have more questions? Do not hesitate to contact us!

How much for that tax return?

4/15/2022

Standard Returns – these types of returns include T4s, RRSP slips, some medical expenses and perhaps other income slips. The prices typically range from $60 to $80 depending on the work involved with processing the return. We also welcome people with investment portfolios beyond RRSP slips.

If you are a senior with a couple of slips, we offer special pricing for you.

Self-Employed – self-employed folks come to us often to compile their tax returns. Some may have their bookkeeping organized and some may have a shoebox full of receipts. We welcome both types of self-employed returns. The returns start at $120 (for simple returns) and $140 (for more complex returns) plus bookkeeping fees (if required).

Rental Income – returns that include one rental start at $140 and the price increases with more rental properties.

Corporate Returns – our corporate returns start at $500 plus bookkeeping.

Have more questions? Do not hesitate to contact us!

Children and Taxes...

4/15/2022

The apple of your eye could earn you an important tax deduction. In order to qualify for the deduction, you paid another person to look after your child to earn income from your business or employment or attend school. The child must live with you in order to claim the expenses and the child must be under 16 unless the child has an impairment in physical or mental function.

Eligible expenses (as per CRA’s website):

- caregivers providing child care services
- day nursery schools and daycare centres
- educational institutions, for the part of the fees that relate to child care services
- day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school)
- boarding schools, overnight sports schools, or camps where lodging is involved

Have more questions? Do not hesitate to contact us!

Home Business

4/1/2022

Do you run your business from your home? Are you familiar with the different expenses you can use to lower your tax bill? Here are some examples.

1 - Business Use of Home – a portion of the invoices you already pay can be used against your business income.
- Home insurance
- Heating costs
- Electricity Internet
- Mortgage Interest or Rent
- Property Taxes

The only trick is to apply the correct calculation to apply the following formula to your total costs from the list above. If you have a dedicated work space, you only need to divide the square footage of the work space by the total square footage of your house (e.g. 200 sqr feet / 1000 sqr feet x 100% = 20%). If you work in a space that is used for more than just work, you need to multiply this number one more time with the percentage of time spent working per week divided by the total hours in a week (e.g. 200 sqr feet / 100 sqr feet * 20 hours / 128 x 100% = 2%).

2 - Office Supplies and Equipment – supplies you use to carry on your business such as paper, ink, pens and postage. If you work in producing goods you sell this would include anything you use to produce your goods. If you purchase equipment and software that costs a bit more could be considered capital assets and those would require to be depreciated over a number of years.

3 - Advertising – any fees paid to promote your business would be deductible.

4 - Fees to Pay Accountants and Bookkeepers – even tax preparation fees!

5 - Vehicle expenses – see our article regarding use of vehicles for more information.

6 - Meals and Entertainment – we always recommend that if you are taking someone out for a business meal that you write the name of the individual you dined with and the purpose of the meal. Most meals and entertainment costs are 50% deductible. Staff parties where everyone is invited is 100% deductible (up to six events a year).

7 - Interest on Business Loans – if you were required to take a loan out to fund your business venture, you can use the interest and other bank fees as deductions.

8 - Business Insurance

9 - Conventions – even that convention in Las Vegas can be tax deductible if you attended it to run your business. The deduction could include travel costs.

Have more questions? Do not hesitate to contact us!

Making Your Home Work for You

3/12/2022

Did you know that the work-from-home tax credit is back in 2021? If you have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2021 you are eligible to use your home office expenses as deductions to your income in 2021. CRA allows you to claim this credit through a simplified method using a $2 per day temporary flat rate, however, they increased the 2021 maximum to $500 from $400.

If you prefer to claim the detailed method, the following list outlines what you can claim:
-electricity
-home internet access fees
-maintenance and minor repair costs
-rent paid for a house or apartment where you live

In addition to these expenses, commissioned employees can claim:
-home insurance
-property taxes
-lease of a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income

What cannot be claimed:
-mortgage interest
-principal mortgage payments
-home internet connection fees
-furniture capital expenses (replacing windows, flooring, furnace, etc)
-wall decorations

Have more questions? Do not hesitate to contact us!

Driving Down Taxes

3/4/2022

Do you use your vehicle for work? Did you know you can use a percentage of your car expenses in your tax return?

Here are some of examples of important information when using car expenses as deductions:

1. Keep a mileage log: 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
-the reading of your odometer before and after your trip

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.

2. If you are using the detailed method, keep all your vehicle receipts. Yes. Even that gas receipt when you tanked up right before leaving for your road trip to Vancouver. The calculations for the allowable expense use your TOTAL vehicle expenses. You are short changing yourself if you keep only gas receipts from the times you filled up right before a client meeting.

3. If you are an employee, get a T2200 (Conditions of Employment) signed by your employer.

Have more questions? Do not hesitate to contact us!

Win A Little, Give a Little

2/18/2022

Donation must be to a Registered Canadian Charity. Contact us for details for the skill-testing question.

We Are Excited Too!

2/18/2022

Opening March 1st, 2022

Did You Receive any Covid-19 Benefits?

2/4/2022

Have you received COVID-19 financial aid like many Canadian households? CRA is rolling out a review of the benefits that were paid out to recipients in an effort to identify those who did not qualify for the CERB/CRB payments. For those who received the benefit and are found to not be eligible may need to pay it back.

If you received CERB or CRB payments, you may receive a letter through the mail at your last known address or in your My CRA account. If you have moved and/or cannot access your CRA online account, please contact us. We will be more than happy to help you access your information.