• Advertising (in Canadian newspapers, On Canadian TV, and / or Canadian Radio

• The entire expense is deductible if your advertising is directed to a Canadian market and the original editorial content is 80 per cent or more of a periodical’s non-advertising content.
• Deduction is capped at 50 per cent if your advertising is directed to a Canadian market and the original editorial content is less than 80 per cent of a periodical’s total non-advertising content

• Bad Debt

• You cannot collect money owed to you in the current year and have already included the receivable in income

• Business start-up cost

• Must have started your business in the fiscal period in which the expense is incurred
• Must have a clear launch date for the business

• Business Tax, Fees, Licenses, and Dues

• Annual license fees are tax deductible
• Annual dues or fees for belonging to professional organizations may be deducted, unless the organization’s main purpose is dining, recreation, or sporting
• The cost of subscriptions to professional publications may be deducted
• Some business taxes are deductible

• Business-use-of-home Expenses

• Business-related purposes may be deducted if workspace in your home is your primary place of business, or such space is only used for business-related purposes and to meet with clients, customers, or patients.
• The total deduction must be proportionate to the amount of space dedicated to your business (e.g., 25 sq. m. office in a 250 sq. m. home = 10 per cent max deduction of qualifying expenses)

• Capital Cost Allowance

• A portion of the cost of depreciable property, such as buildings, furniture, or equipment, may be deducted over time

• Delivery, Freight, and Express

• Deductible

• Fuel (except for vehicle)

• Deductible
• Fuel related to business use in your home must be claimed as a business-use-of-home expense

• Insurance

• Commercial insurance premiums are deductible
• Vehicle-related premiums must be claimed as motor vehicle expenses
• Premiums related to business use in your home must be claimed as business-use-of-home expenses
• A portion of life insurance premiums may only be claimed if the policy was used as collateral for a business-related loan

• Interest and Bank Fees 

• Interest incurred on borrowed money is deductible if the loan was acquired for business purposes
• Certain loans have limitations

• Legal, Accounting, and Professional Fees

• Fees incurred for professional advice, services, or consulting are deductible
• Income tax and GST/HST preparation and filing fees are deductible
• Fees incurred to buy capital property are not deductible

• Maintenance and Repairs

• The cost of labour and materials for repairs done to property used for purposes of business income is deductible
• The value of your own labour, cost for repairs of a capital nature, or costs reimbursed by an insurance company are not deductible
• Repairs related to business use of your home must be claimed as a business-use-of-home expense

• Meal and Entertainment

• Fifty per cent of the lesser of either the amount incurred or a reasonable amount may be deducted
• Special rules may apply when traveling

• Office Expenses

• Small items, such as pens, pencils, and paperclips, may be deducted
• Calculators, furniture, and items deemed capital items may not be deducted

• Prepaid Expenses

• May be deducted in the year or years in which you receive the benefit if you are using the accrual method of accounting
• Non-inventory related prepaid expenses may not be deducted if: you are using the cash method of accounting OR it has been two or more years since paying the expense

• Property Taxes

• May be deducted for property-related to your business
• Property taxes related to business use of your home must be claimed as a business-use-of-home expense

• Rent

• May be deducted for rents incurred for business use
• Rent related to business use of your home must be claimed as a business-use-of-home expense

• Salaries, Wages, and Benefits

• Gross salaries and other benefits paid to employees may be deducted, except for salaries or drawings paid to any owners or partners

• Supplies

• The cost of items used indirectly to provide goods or services may be deducted

• Telephone and Utilities

• Phone and utility costs incurred to earn income are deductible
• Utility expenses incurred at your home for business-related purposes must be claimed as business-use-of-home expenses
• Cell phone bills can also be tracked through your business-use-of home expenses when you are paying for the bill personally

• Travel

• The cost of travel expenses incurred for the sake of business or professional-related purposes may be deducted

Before you can claim an expense as a deduction, your business must have a reasonable exception of profit. other words, you may not be able to claim an expense as a deduction if the CRA has reason to suspect your activities may never be profitable.

For example, income earned from a hobby means you might not be eligible to claim expenses as tax deductions since you never intend it to be profitable. However, you should speak to an accountant to see if it would be wise to have your hobby classified as a business, and therefore eligible to claim tax deductions.

Businesses that aren’t yet turning a profit may have to show the CRA when they expect to be profitable. In this case, you may be able to successfully claim a deduction even if your business hasn’t yet earned a profit.

• ‣  Why should you claim business expenses?

Reducing your tax obligations by deducting qualifying business expenses keeps more money in your business bank account—something that’s important at every stage of your business. That extra money could be reinvested into your business to encourage continued growth, used to benefit your community, or to improve the lives of your employees and family.

• Determine if you have small business/self-employment income that must be reported on a schedule T2125.
• Create a profit and loss statement for the year (or since you started your business) by using a spreadsheet or an accounting software.
• Either use tax software to add the T2125 statement of business activities to your tax return or manually download the schedule to complete it.
• Identify the type of business you have and determine your 6-digit NAICS/Industry code.
• Determine whether you are reporting business income or professional income.
• Review the cost of goods sold and expense categories on the T2125 and match them to the categories from your profit-loss from Step 2.
• Determine your motor vehicle, capital cost and home office expenses and use the separate sections on the T2125 to enter these.
• Complete the CPP portion of your tax return if you are doing it manually. If you are using software, this will be automatically calculated.
• Ensure that the rest of your personal tax return is complete and all other types of income, deductions and credits have been entered.
• Electronically file (EFILE) your tax return or mail it to CRA by the deadline of June 15th.
• Pay taxes due by using bill payments in online banking, send a cheque with your tax return or wait for the notice of assessment to make payment. If you cannot pay the full balance, contact CRA to make payment arrangements.
• If you are registered for GST and HST and provincial tax, complete and submit your return by June 15th and make payment by April 30th to avoid interest.

There are more than 30 tax measures are set out in the Liberal Party’s 2021 campaign platform. Some of them, already announced but most are new. The Summary of the government’s plans as set out in campaign is as under:

• COVID-19 support and economic recovery
• Tax measures for businesses
• Tax measures for individuals
• International measures

Remember, some of these potential changes may not proceed, while others could be significantly modified before they are introduced. In most cases, more information is needed to know how the procedures would apply in practice while some proposals were previously announced in the 2021 federal budget.

COVID-19 SUPPORT AND ECONOMIC RECOVERY

The federal government’s tax commitments related to the pandemic and associated economic issues include:

• Extending the Canada Recovery Hiring Program to March 31, 2022
• Providing temporary wage and rent support to the tourism industry of up to 75 per cent of their expenses
• Introducing a tax credit for costs incurred by small businesses to improve ventilation

TAX MEASURES FOR BUSINESSES

Other government promises related to corporate income and business taxes include the following:

Increase taxes for banks and insurance companies

Corporate income tax rates on banks and insurance companies with income exceeding $1 billion per year would be increased to 18 per cent (from 15 per cent). These companies would also pay a temporary Canada Recovery Dividend.

Tax rules for landlords

Landlords would be required to disclose on their tax returns the rent they receive before and after renovations. A surtax would apply if the rent increase was excessive.

Tax treatment of large corporate owners of residential properties

The government intends to review the tax treatment of large corporate owners of residential properties such as real estate investment trusts.

Flow-through shares

The current flow-through share tax rules that apply to oil, gas and coal projects will be eliminated.

Scientific Research and Experimental Development (SRED) Program

The SRED Program will be reformed in order to reduce red tape and better align eligible expenses with current innovation practices.

Business investment tax credits

Commitments for new and amended tax credits for business investment include:

• introducing new investment tax credits for a range of renewable energy and battery storage solutions
• doubling the Mineral Exploration Tax Credit for materials on the Canadian list of critical minerals
• developing an investment tax credit of up to 30 per cent for a range of clean technologies, including low-carbon and net-zero technologies

TAX MEASURES FOR INDIVIDUALS

On personal taxes, the government has laid out many potential new tax rules, deductions, and credits. These include:

Minimum tax for higher-income individuals

In addition to the existing alternative minimum tax, a minimum tax would apply to individuals in the top tax bracket to ensure they pay federal tax of at least 15 per cent.

Home office expenses

The home office flat rate deduction that applied for 2020 will be extended to 2021 and 2022, and the maximum deduction will be increased to $500.

Anti-flipping tax

An anti-flipping tax on residential properties held less than 12 months will be introduced.

Deduction for health care professionals

The government will introduce a one-time income tax deduction for health care professionals of up to $15,000 over their first three years of practice to help with the costs of setting up a practice.

First Home Savings Account

A potential new savings account would allow Canadians under age 40 to contribute and save up to $40,000 on a tax-free basis, to use for their first home purchase, with no requirement to repay.

Employment Insurance (EI) benefit for self-employed individuals

A possible new EI benefit for self-employed Canadians would be delivered through the tax system and provide benefits similar to the current EI program.

Digital platform workers

There are plans for legislative changes to ensure that workers employed by digital platforms are covered by EI and the Canada Pension Plan (CPP), including employer contribution requirements.

Introduce new non-refundable tax credits

The government plans to introduce a number of credits that appear to be additions to the existing block of non-refundable credits carrying a credit rate of 15 per cent. These potential credits include:

• Labour Mobility Tax Credit for the eligible expenses of workers in the building and construction trades, allowing them to claim a tax credit based on eligible travel and relocation costs of up to $4,000 (maximum credit of $600)
• Multigenerational Home Renovation Tax Credit for costs of up to $50,000 for families adding a secondary unit to their home for an immediate or extended family member (maximum credit of $7,500)
• Home Appliance Repairs Tax Credit for the cost of home appliance repairs performed by technicians up to $500 (maximum credit of $75)
• Career Extension Tax Credit for individuals aged 65 and over who earn a minimum working income of $5,000 (maximum credit of $1,650; reference is also made to reducing a portion of tax payable on this income)

Changes to existing Tax credits

In addition to new tax credits, there are commitments for adjustments to some existing credits. These include:

• Reviewing the Disability Tax Credit and other federal benefit programs to ensure they are available to people experiencing mental health challenges
• Increasing the credit rate for the Eligible Educator School Supply Tax Credit to 25 per cent and expanding eligibility to include tech devices
• Increasing the Home Buyers’ Amount to $10,000 (from $5,000), resulting in an additional credit of $750
• Converting the Canada Caregiver Amount into a refundable, tax-free benefit of up to $1,250
• Increasing the maximum amount of expenses allowed for the Home Accessibility Tax Credit to $20,000 (from $10,000), for a maximum credit increase of $1,500
• Expanding the Medical Expense Tax Credit to include costs reimbursed to a surrogate mother for in vitro fertilization expenses

INTERNATIONAL MEASURES

Some potential tax measures have an international focus. These include:

General anti-avoidance rule

The government remains committed to modernizing the general anti-avoidance rule by focusing on economic substance and by restricting the ability of federally regulated entities, including financial institutions, to use tiered structures as a form of corporate tax planning that flows Canadian-derived profit through entities in low-tax jurisdictions in order to reduce taxes back in Canada.

Global corporate minimum tax

The government has reconfirmed that it will work with international partners to implement a global corporate minimum tax.

Tax on vacant land

The government plans to extend the tax on non-resident, non-Canadian owners of vacant, underused housing, which takes effect on January 1, 2022, to also cover foreign-owned vacant land within large urban areas.

Please make sure you have all your income records and receipts you need prior to move towards your taxes:

Information Slips

• T4 (Employment income)
• T4E (Employment insurance benefits)
• T4A (COVID-19 relief payments)
• T3, T5, T5008 (Interest, dividends, mutual funds)
• T2202 (Tuition and Enrolment Certificate)
• T4A-OAS, T4AP (Old Age Security and CPP benefits)
• T4A (Other pensions and annuities)
• T5007 (Social assistance payments)
• T5007 (Workers’ compensation benefits)
• All other information slips

Receipts

• RRSP contribution receipts
• Support for a child, spouse or common-law partner
• Professional or union dues
• Tool expenses (Tradespersons & apprentice mechanics)
• Home-office expenses (if working at home due to COVID-19)
• Other employment expenses
• Teacher’s school supplies
• Medical expenses
• Home renovations (seniors & persons living with disabilities)
• Charitable donations
• Political contributions
• Child care expenses
• Adoption expenses
• Moving expenses
• Interest paid on student loan
• Carrying charges and interest expenses
• Home-office expenses
• Exams fees for professional certification
• Digital news subscription

Other documentation

• CRA notice of Assessment/Reassessment
• CRA correspondence
• Sale of principle residence
• Northern residence deduction receipts
• Rental income and expenses receipts
• Business, farm or fishing income/expenses
• DTC (Disability Tax Credit Certificate
• T2200 (Declaration of Conditions of Employment
• Volunteer Firefighters’ certification
• Search and Rescue volunteers’ certification
• Written certification for eligible educator school supplies
• _________________________________________

Hi All,

The start of the New Year, for a number of people, was a bit hushed this year. COVID-19 related restrictions put a shrinkage on most celebrations. It was maybe even more difficult as we seemed to be crawling back towards normal life and once again, we inverted route unfortunately. We can only wish that 2022 will be in good health for all.

It’s so sorry to say, no matter what limitations are put in place, taxes are here to stay, through good times and bad. While most of the people, except for Accountants who are starting to prepare for their busy season have perhaps not given much thought to taxes yet, it is a good time to just have some alertness that taxes are coming up.

Significantly, what your tax obligations are beforehand and when taxes are due, have it in mind that you are not hurrying to get things done at the last moment. It also allows you to plan your finances to ensure that you are able to pay any balances due or potentially file your taxes sooner if you are expecting a refund. If you are not a small business owner, you simply have to determine whether you are going to contribute to RRSPs and ensure that you file your income tax return by the deadline. If you are an un-incorporated small business owner there are a few other deadlines that might pertain to you. If you are incorporated, many of your business deadlines are based on your year end date (except dividend and salary declarations which are based on the calendar year).

Regardless of your situation, you should file your tax return even if you literally only have one T4. This allows you to avoid unfriendly letters from CRA, confirms your limits and tax carry forwards such as RRSP contribution limits and sometimes even results in a refund.

STARTING WORK AS AN UBER DRIVER

If you are thinking about to start work as an Uber driver then you should need to know a bit about the basic concept of this Gig economy, and income tax laws:

As an Uber driver, you are considering as a self-employed independent contractor for the Canadian income tax purposes and you have to report your income on Form T2125 business income statement.

BUSINESS NUMBER (BN) AND HST REGISTRATION

You need to get a business number from CRA and will have to register for GST/HST for tax purposes regardless of your gross revenue, because ride-sharing services are treated the same way as taxi businesses which means the small-supplier rules do not apply here.

You do not have to worry about the amount of GST/HST collected from your riders since Uber collects the GST/HST on your behalf and provide you with the weekly break-down thereof along with your payment statement and, or on your annual summary. However, as an Uber driver, it is your responsibility to file a GST/HST return and remit the taxes to the CRA.

As a registrant, you are allowed to deduct GST/HST that you pay for direct expenses for your business. This means you will only remit the net GST/HST amount to the Canada Revenue Agency.

FREQUENCY FOR GST/HST FILING

Once you are registered for the GST/HST, the CRA will assign you a reporting period for filing a GST/HST return. In most cases, this will be annual. However, drivers who are expecting to be in a refund position may want to file monthly or quarterly instead. You can do it by advising the CRA on My Business Account or by mailing a Form GST20, Election for GST/HST reporting period to your tax centre.

ANNUAL TAX SUMMARY

As an Uber driver, you should be familiar with Uber annual tax summary. A breakdown of your income from ride-sharing is provided on the left-hand side of the tax summary. All income in the left-hand column except tips and referrals or promotions should be reported as gross sales while tips and referral should be reported as other business income in the form T2125. The GST/HST must be included in gross sales and classified as a discount so that it cab be deducted accordingly.

BUSINESS EXPENSES

On annual summary, an offsetting deduction for fees and tolls which are identified as income but which Uber charges back to the Uber drivers, specifically:

• Split fare fees
• Airport fees
• Booking fees
• City fees
• Tolls

VEHICLE EXPENSES

You can claim your vehicle expenses in the same way as for other self-employed who use a vehicle for business. For the proper deduction of your vehicle expenses, you should maintain a logbook, whereas Uber classifies the trip mileage only that includes the travelled between the pick-up and the drop-off. It does not include the mileage travelled to get to the pick-up which is justifiable business usage as well. You must keep a record of your odometer reading at the beginning and end of the year in order to calculate the percentage of their total mileage used for business. The following expenses are typically be claimed:

Partially deductible expenses:

• Fuel (gasoline, oil, propane)
• Standard insurance
• Interest on car loan
• License & registration
• Leasing costs

General maintenance & repairs:

• Tires
• Service
• Car wash

Fully deductible Expenses:

• Repairs incurred for damage done while on business
• Parking while on business
• Supplementary business insurance
• Cost of cleaning up after passengers soil the vehicle
• Supplies i.e., bottled water, magazines etc. As long as it is not for your own use, this should be a reasonable expense. It would be subject to the typically 50% limitation for food and entertainment expenses.

BUSINESS-USE PORTION CELL PHONE EXPENSES

• Cost
• Airtime

OTHER EXPENSES

• Interior cleaning/repair
• Bookkeeping/tax return preparation
• Tax preparation fees charged in the previous year can be claimed in full as a business expense
• Uber service fees (From the Uber Tax Summary)

EXPENSES NOT-ALLOWED

These are the expenses which cannot be claimed like:

• Traffic tickets
• Clothing
• Haircuts
• Sunglasses
• Meals (unless you had a fare out of town and had to eat in a restaurant, in that case it would be subject to the 50%)

Disclaimer

This information page intended to provide for a general awareness only. This info does not take into account your personal set of circumstances and is not intended to be used without consultation from accounting and tax professionals. ZainTax Accounting & Tax Services Inc. will not be held responsible for any difficulties that occur from the usage of this information provided.