Tax Tips for 2013 for Entrepreneurs, Business Owners and the Self-employed

Tax Tip 1: The 2014 Tax Calendar
The Canada Revenue Agency can be a stickler when it comes to doing things right and on time. Failure to comply can mean costly fees and penalties, so it’s worth making an effort to know exactly what’s due, and by when.

Here, Gary Katz, CPA, CA, of Logan Katz LLP Chartered Accountants in Ottawa, shares a calendar of some of the more common must-know dates and deadlines for businesses, the self-employed and other taxpayers. So fire up your iCal or log on to Outlook. Plug these dates in, and don’t forget to set those reminders.

February 28 Filing deadline for T4s (RL1), T4A, T5 (RL3)
March 3 Deadline for 2013 RRSP contributions
March 17 First personal income tax instalment for 2014
March 31 General trust return deadline, including T3 slips and summary
March 31 NR4 filing information for amounts paid or credited to non-residents of Canada
March 31 T5013 - Partnership information return due (where partners are individuals)
April 15  U.S. tax filing deadline for American citizens and others residing in the U.S. Also, deadline for paying the balance of tax for citizens and residents living and working outside the U.S.
April 30 Deadline for paying the balance of taxes and filing income tax returns, unless eligible to file by June 15
June 16 Filing deadline for self-employed individuals and their spouses or partners
June 16 Second personal income tax instalment for 2014
June 16 U.S. income tax return filing deadline for citizens and residents living and working outside the U.S.

Tax Tip 2: Save enough to pay your taxes, and a little more
If you’re self-employed or running a business, it’s important to stay in the black with the Canada Revenue Agency. But how do you determine how much you’ll need to pay your taxes each year?
All things being equal, Stephen McCulloch, CPA, CA, in Pembroke, says certain key pieces of information can give you a reasonable estimate of what you’re likely to owe.
“What you’ve paid in previous years is a better indicator than no indicator at all,” he says. “If your personal circumstances or your business’s performance hasn’t changed substantially, chances are the amount you’ll owe will be roughly similar.
“For self-employed businesspeople, there are many variables, but your overall revenue is a good indicator. I recommend owners save an amount roughly equal to the HST they’ve collected during the period in question, plus a reasonable estimate of what they’ll owe for personal income taxes.”
Still, McCulloch believes in erring on the side of caution. “Unless there are good reasons not to, I encourage people to save a little more than they may actually need. They’re less likely to get caught short that way, and they may even get a little cash back from the CRA. I like seeing people leave my office with smiles on their faces.”
For advice about your own particular circumstances, contact a Chartered Professional Accountant in your community.

Tax Tip 3: Deduct the cost of tools you need for work
Are you a tradesperson who needs specific and sometimes expensive tools to make a living? If yes, be sure you’re getting all the tax savings the Government of Canada offers when you file your tax return.
“If you’re an electrician, mechanic, bricklayer or other tradesperson who must buy their own tools for work, in most cases you can claim the lesser of either $500 or the following calculation,” says Larraine Ebbers, CPA, CA, managing partner with Welch LLP in Belleville. “The total cost of eligible tools you bought in the calendar year in question, minus $1,117; or, your income as a tradesperson less $1,117—whichever is less.”
The income you use in your calculation must include any amounts you received under the Apprenticeship Incentive Grant and/or the Apprenticeship Completion Grant programs. And, you must deduct from your income any Apprenticeship Incentive Grant and/or Apprenticeship Completion Grant overpayments that you had to repay for the year in question.
“Self-employed tradespersons who purchase tools costing over $500 can claim depreciation of ten per cent the first year, and then claim 20 per cent in following years until the total cost is written off,” Ebbers adds. “Tools costing less than $500 are depreciated at a 100-per-cent write-off in the year they’re purchased.”
Apprentices who may claim under the Apprentice Mechanics Tools Deduction Program are a special case.
“Apprentice mechanics may also be able to deduct part of the cost of eligible tools bought to earn employment income, including any HST that was paid,” says Ebbers. “This is an extra deductible expense that’s available to apprentice mechanics and it’s only for tool expenses that are over-and-above the tradesperson’s tool expense deduction. Get Form T2200 from your employer, specifying that these tools are a condition of employment and stating the amount of the expense. Enter the amount on Line 9131 (Line 1770 is the line number for the tradesperson tool expense) on Form T777, Statement of Employment Expenses.”
Don’t worry if you can’t claim all that you had to spend. Any amounts not claimed in the Apprentice Mechanics Tool Deduction can be carried forward to help offset taxes in future years.
Be sure to check the Canada Revenue Agency website for more information about what tools are eligible, or consult a Chartered Professional Accountant in your community for advice.

Tax Tip 4: Who can deduct driving expenses?
If you use your vehicle to earn a living, many of the costs of owning and operating it can be deducted when you file your tax return. This applies to the self-employed, and to certain employees who have to pay their own motor vehicle expenses, but don’t receive a non-taxable allowance from their employer to cover them.
The Canada Revenue Agency has strict guidelines about what constitutes business mileage. You can’t, for instance, count the cost of driving from home to the office and back. But it’s a pretty safe bet that what you spend travelling to see clients, driving to work-related conferences or making deliveries will be valid deductions.
“When you use what the Canada Revenue Agency calls a ‘passenger vehicle’ for business, you should keep a log book and record the number of kilometres you drive,” explains Keith Shantz, CPA, CA, CFP, a partner with Welch LLP in Belleville. “Then a portion of your gas, insurance, repairs and maintenance, and even your registration sticker, can all be deducted from the vehicle’s total expenses, when you consider the kilometres driven for business use as part of the total number of kilometres driven.”
If you have more than one vehicle, Shantz recommends you limit your business use to just one, as the record-keeping is much simpler.
Purchasing a vehicle for work can also save on taxes. You can claim a capital cost allowance to deduct a portion of the purchase amount and the interest on the loan you took to buy it, or a good part of the lease amount.
“You cannot claim more than $30,000 for a vehicle,” says Shantz. “If you’re considering a used car that you’ve previously purchased for non-business use, have it appraised so you’ll know its actual value at the time you begin using it for work. Commissioned salespeople, particularly, might consider leasing a vehicle. Many of the limitations the CRA applies to purchasing vehicles don’t extend to leasing, so the savings can be even greater.”
Certain kinds of pick-up trucks and other similar vehicles are not considered passenger vehicles. They aren’t subject to these limitations, and may be eligible for additional savings or deductions, Shantz says.
So consider the merits of each option, or consult a Chartered Professional Accountant in your community to help you determine the best vehicle for your purposes and the one that offers the greatest tax savings.

Tax Tip 5: Legal fees for business are tax-deductible...sometimes
If you’re in business, chances are you’ll need the services of a lawyer at some time, for some reason. But don’t assume those fees may always be deducted when it comes time to file your tax return.
“The Canada Revenue Agency is questioning things like this more than ever before,” says Stephen McCulloch, CPA, CA, in Pembroke. “Legal fees relating to operating a business must be considered on a situation-by-situation basis.”
Generally, legal fees that relate to the normal activities, transactions or contracts needed to earn income from a business are allowable deductions. So what a lawyer charges to do things like prepare a lease or contract, collect debts or make annual corporate filings are likely to be allowed, in full or in part.
“But policies are constantly changing, and the CRA is asking for substantiating information and documentation much more frequently,” McCulloch says.
To play it safe, consult a Chartered Professional Accountant in your community about your specific circumstances.
Brought to you by the Chartered Professional Accountants of Ontario

Tax Tip 6: Don’t be late making your tax instalments
If you don’t have an employer who deducts income taxes from your pay cheque and remits them directly, you may have to make regular tax instalments to the Canada Revenue Agency yourself. Failing to do so on time can be costly, so be sure to put aside enough money to cover whatever amount you’re likely to owe.
“If you paid $3,000 or more in taxes with the last tax return you filed or the one prior to that, and you expect that you’ll have to pay $3,000 or more in the current tax year, you may be required to make instalments this year,” says Larraine Ebbers, CPA, CA, managing partner with Welch LLP in Belleville. “Notifications come out in August or September for your first two instalment payments, and in February for instalments due in March and June. If you owe money and don’t make your instalments set out in the CRA notices, you’ll be charged interest when you file your tax return the following year.”
Generally, those who must pay instalments are the self-employed and people who have income from multiple sources. This includes many retirees, who may be drawing on their savings, getting income from investments or registered retirement income funds and collecting pensions and/or Old Age Security payments.
Consider getting advice from a Chartered Professional Accountant if this is your first time paying instalments, or if your income is very different from previous years and you’re not sure how much you’re likely to owe.
“The CRA charges interest at the prescribed rate—currently 5 per cent—on any instalments that aren’t made, and the interest paid is not tax-deductible,” says Ebbers. “Nor do they pay you interest on any overpayments you make. So it’s important that the estimates of your earnings and the amount of taxes you must pay be as accurate as possible.”

Tax Tip 7: Leasing equipment can mean tax savings for employees
If you’re an employee who’s looking for cost-effective ways to get some of the basic equipment and tools you need to work, consider leasing instead of buying.
With the exception of automobiles, musical instruments and airplanes, employees are not generally allowed to claim capital cost allowance for assets they purchase to use for work. This limits the deductions they can make for some of the more costly pieces of equipment that they may need and can’t directly write off as an expense.
But with leasing, it’s a different story.
“The Canada Revenue Agency doesn’t allow you to deduct the cost of that computer that you need as a commissioned salesperson” says Keith Shantz, CPA, CA, CFP, a partner with Welch LLP in Belleville. “But if you lease the computer from a supplier—or perhaps even if your spouse buys it and you lease it from them—the cost of the lease could be written off.” To claim it on your tax return, make sure your employer completes and provides you with a signed form T2200.
Shantz says it’s important that the lease agreement be properly documented on paper, and that the terms of the agreement make sense.
“You can’t buy a $2,000 computer, and then lease it for $300 a month,” he says. “But providing the amounts are reasonable and extend over an appropriate period of time, you can often deduct close to 100 percent of the value of the equipment or tool that you lease.”