Canuckbusiness

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Can I scan and keep electronic copies of my business receipts?

My receipts fade and become unreadable after 6 months! Can I scan and keep electronic copies instead?

 

Yep! You can keep digital copies if you prefer. You just have to follow these rules (you knew there’d be rules, right?):

http://www.cra-arc.gc.ca/E/pub/tg/rc4409/rc4409-e.html

Check out Chapter 2: Keeping Electronic Records and specifically:

 

Requirements for an acceptable imaging program

You must keep the original version of records. You may, however, produce an electronic image of a paper document, which then can be accepted as the original record provided you follow certain procedures. Imaging and microfilm (including microfiche) reproductions of books of original entry and source documents have to be produced, controlled, and maintained according to the latest national standard of Canada. For more information, see Information Circular IC78-10R5, Books and Records Retention/Destruction, and GST/HST Memorandum 15.1, General Requirements for Books and Records. Also, refer to the Canadian General Standards Board (CGSB) publication, CAN/CGSB 72.11, Microfilm and Electronic Images as Documentary Evidence, and its latest amendment.

Businesses using commercial software for smaller scale electronic scanning of their paper records and supporting documents should ensure that their scanned records meet the rules and guidelines set out in the latest national standard of Canada.

You can destroy paper books of account and supporting documents if they have been imaged in accordance with the above CGSB publication. These images become the permanent records. If you have any doubt, obtain legal advice first.

If businesses cannot meet the Canadian General Standards, they must keep their original records.

The standards are available to view at selected libraries in Canada. The standards are also available for purchase from the CGSB:

By mail:

Sales Centre
Canadian General Standards Board
Gatineau QC K1A 1G6

In person:

Place du Portage
11 Laurier Street
Phase 3, 6B1
Gatineau QC

By Internet: e-Store

By telephone, fax, or email:

National Capital Region: 819-956-0425 Rest of Canada: 1-800-665-2472 Fax: 819-956-5740

Email: ncr.cgsb-ongc@pwgsc.gc.ca

 

May 19, 2013 Posted by | Random Questions, Running Your Business | Leave a comment

What happens with remaining inventory in last year in business?

This was a good question I got from someone recently that I thought others might find useful.

“I ran a small (teeny, tiny) gift basket business (from home). I’m reporting 2012 as my last year in business. What happens with the remaining inventory tax-wise? Any tax ramifications that I should know about?”

You can take care of this in the Cost of Goods sold section (on your T2125 form). Enter your opening inventory (Line 8300) but leave the closing inventory line blank (Line 8500) . That way you get the deduction for the entire amount of your remaining inventory, which is only fair because you had to pay for that inventory in the past.

Also, make sure you zero out any Capital Cost Allowance (CCA) items (computers, furniture, etc) by “disposing” of them for an amount equal to the “UCC at the end of the year”. This makes your “Undepreciated Capital Cost” zero. To do this, go to “Area D” in the capital cost section of the T2125. If you don’t do this and you carry forward your return into next year’s tax software, you may get a CCA deduction showing up on your return somewhere.

Oh, and be sure to check that box “yes” to the question: “Is this your last year of business?”.

Next year, when you do your tax return, just have a quick look to make sure nothing is coming through on Line 135-139 on your tax return. If there is something there, follow it back to the T2125 and zap it! Those old businesses sometimes have a way of hanging around and haunting their owners for years to come.

March 14, 2013 Posted by | cost of goods sold, Running Your Business, tax, tips | , | Leave a comment

What Canadian tax software should I use?

And the winner is … TurboTax! by Intuit.

Surprise, surprise.

Okay, let me get this out of the way up front. I don’t get anything for recommending TurboTax. Absolutely nothing–no affiliate pennies***, no karma points in Accountant heaven, no kickass adding machine for sending you all over to the Intuit website. (But if you’re listening, Intuit Man, you do owe me a favour.)

In fact I don’t even really like TurboTax as a tax software that much. But, they are consistent, relatively easy to use, and most importantly, since they are the big kid on the block, they will be around for years to come, unlike some start-ups. I’m looking at you TaxWiz – anybody remember those guys? They were around several years ago and were a few bucks cheaper than TurboTax (who was still going by the name of QuickTax back then, I believe). Anyway, once TaxWiz  had acquired enough market share to make the Intuit mother ship angry, Intuit bought them out. Which, I imagine, was TaxWiz’s hope all along.

TurboTax has an online version and CD/Download version where you can store all your data on your own computer. Call me crazy, but I prefer the latter. Although, if you qualify to use one of their free online editions, you may want to check those out. It’s tough to beat free:

Free Online Edition (conditions apply)

Free Student Edition (conditions apply)

CD Editions:

Intuit Turbotax Basic Tax Software Tax Year 2012

Intuit Turbotax Standard Tax Software Tax Year 2012 (I use this one)

Intuit Turbotax Premier Tax Software Tax Year 2012

Intuit Turbotax BUS Home Business Tax Year 2012

So, which one should you use? Well, I use the Standard edition. I have to deal with a rental property, a few stock sales, and a couple of small (micro?) businesses.

What? You should be using the Home & Business edition!

If you just read the product descriptions, you would think so, wouldn’t you? But the truth is the Standard edition has all the tax forms necessary for rental properties, stock sales, and businesses included with it. Basically, the Premier and Home & Business editions have extra “interview questions” included with them. That is how they justify the higher prices. But if you prepare your return just using the tax forms themselves, you don’t need those interview questions. In fact, I find them quite annoying.

So, why not go really cheap and use the “Basic” edition?

Because the Basic edition does not allow you to carryover last year’s information into this year’s tax return. You would have to re-enter everything in again, including your address info and all your carry-forward amounts (RRSP carryforwards, capital losses, etc.). A real pain if you have a memory like me.

So there you have it. If I wrote ad copy for Intuit it would go something like this:

“TurboTax Standard Edition–for cheap people with bad memories.”

***Update: Okay, I cracked (or rather figured out how to do it) and signed up for an Amazon affiliate account. So if you do buy anything from Amazon from one of the links above I will get affiliate pennies! If you prefer to get the Download Edition you can get it directly from the Intuit website: Basic, Standard, Premier, Home & Business.

February 24, 2013 Posted by | Running Your Business, tax | , , , | 4 Comments

Foreign currency and exchange rates

Hello 2013!

You know what that means to me? It means the Bank of Canada has its annual average exchange rate available for 2012….woo hoo!

And here they are (in case you care).

Why should I care?

Because they can save you time, and occasionally, money! When you have to report foreign income or expenses on your Canadian tax return, you have 2 options:

1. Report the actual CDN$ amount received/spent after conversion has taken place

2. Use the Bank of Canada’s average annual conversion rate to estimate the income or expense.

Let’s say Uncle Bob is hired in 2012 by an American hunter to hunt moose. They get nothing, because Uncle Bob doesn’t know what he is doing, but the hunter still gives Bob US$100 because of his bubbly personality. Ecstatic, Uncle Bob takes his US$100 bill to the nearest A&W and asks them to convert it before he buys lunch. Knowing this could mean the difference between a Mama Burger sale and a Grandpa Burger, and because they don’t want to irk such a good customer, they give Bob CDN$110. Nice.

So what does Bob report for income on his 2012 Canadian tax return?

If you say, “Nothin’, cuz it was cash,” I’m going to pretend I didn’t hear that. As I mentioned above, Bob has 2 options:

1. CDN$110 (the amount he actually received)

2. Using the link above I see that the Bank of Canada average annual exchange rate is 0.99958008. I MULTIPLY this by the amount of foreign currency Bob received:

0.99958008 X US$100  = CDN$99.96

When it comes to income on your tax return, small is good! So Uncle Bob would be better off with option 2.

CRA is perfectly willing to accept reasonable estimations when it comes to foreign currency, but try not to get too creative.

 

January 3, 2013 Posted by | Running Your Business, tax | , , , , , , | 2 Comments

Can I write off my volunteer time?

I had someone email me recently with a good question. Thought I’d share my answer.

“I am an interior designer and have my own business as a sole proprietor in BC. I am volunteering my time and some materials on a renovation project for a woman with disabilities. I am just wondering if there is any write off, and how to go about doing it?”

When you volunteer your time there is no write-off for that, because there is no actual “out-of-pocket expense”. What do I mean by “out-of-pocket expense”? I mean you didn’t actually pay out money for anything. If cash didn’t leave your hand (or bank account) there is no actual expense. When it comes to CRA’s view on allowable business expenses, your “time” is worthless.

However, the cost of any materials used, on the other hand, is eligible because they cost you money to purchase. They pass the “Out-of-Pocket Test.” (I don’t really know if there is any such test, but there should be!)

There are 2 possible ways to write off the materials. Basically, depending on how much they are worth. If it is a relatively small purchase (say anything under a couple hundred dollars), just put it under “Supplies Expense” on your T2125 and be done with it. If you have COGS (Cost of Goods Sold), and you make purchases over the year and are left with an ending inventory at the end of the year, you can lump it into your “Purchases” account if you like.

Did I say only 2 ways? Yeah, I always say that when I actually mean 3. Putting the cost of materials under “Advertising Expenses” is another option if that’s how you view the activity.

There’s a lot of leeway here. Just don’t try saying it took you 5 hours, and since your hourly rate is $1000, you’re going to write off $5000.

That kind of creative accounting could get you volunteering your time to make license plates.

July 22, 2012 Posted by | Running Your Business | Leave a comment

What class does CRA want software and computers entered into?

How do I enter software and computers on my tax return in Canada?

Computers bought in February 2011 or later belong in Class 50. This class allows a 55% deduction each year. Operating software (such as Windows, etc.) is also included in this class. So if you buy a computer and pay extra for an operating system, just lump them together and put them in Class 50 together.

Software (that is not an operating system) belongs to Class 12, which is a 100% write-off. But not exactly. It is subject to the “half-year” rule which means you only get to write off half in the year that the asset is purchased. Just put it in Class 12 in TurboTax and let the software figure it out for you.

Speaking of TurboTax, does that go in Class 12?

Not in my little piece of the universe. It is only worth about $40 so don’t bother capitalizing it. Put it in Office Expenses and put it out of its misery. Doing so gives you a 100% deduction right now with none of that half-year stuff to worry about. See my post on Expenses vs. Capital Assets for more.

April 5, 2012 Posted by | Home office expenses, Running Your Business, tax | , , , , , , , , | 7 Comments

Can I deduct meals I buy for my employees?

Can I write off meals I buy for my employees?

To answer this question I’m going to send you over to THE TAX DETECTIVE blog to a post by Eileen Reppenhagen.

The general jist is you can deduct up to 6 sessions of meals/entertainment per year as long as all your employees are included.

But, as always, there are exceptions and different tax treatments depending on the situation. So read Eileen’s excellent post on the topic here before you start planning any parties.

March 26, 2012 Posted by | Running Your Business | , , | Leave a comment

How do I write off gifts for clients?

Where do I record gifts for clients on my tax return?

Thanks for e-mailing and asking Jean. I’m sure you’re not the only one wondering this right about now. I have seen gifts put into two categories on the T2125 by small business owners, but there really is only one correct (and by that I mean “advantageous to the business owner”) place to put it.

Meals and Entertainment Expense:
This is the category most often used for entertaining clients. The problem with putting a gift of something like a bottle of wine in here, is that the total of this category is reduced by 50% before being calculated as an expense on the T2125. So for a $20 bottle of wine, you only get a $10 deduction.

Advertising Expense:
This is the best place to put gifts for clients, or people you “hope” will someday be clients. You get a 100% deduction in this category.

What if I don’t have a business but I buy my accountant a bottle of wine for Christmas–can I write it off somewhere?

Nope. But don’t let that stop you 🙂

December 15, 2011 Posted by | Random Questions, Running Your Business, tax | , , , | Leave a comment

How do I write off a capital loss from a previous year?

Which forms and lines should I be using to offset my 2011 capital gains with capital losses from previous years?

We have Jeff to thank for this post. He emailed me and asked this question. I like hearing from people like him because sometimes it’s tough for me to know exactly what kinds of things would be useful for folks out there. So don’t be shy people! Send me your questions and if I know the answer I’ll make a post of it.

So…here is the situation: You have a capital gain in 2011 and you have capital losses from a previous year (or years) and you want to use them to offset your 2011 capital gain.

If you are using TurboTax (or any other software really), open up the Forms explorer and type in “loss” in the keyword search box. One of the matching terms that come up should be “Loss Worksheet”. That’s where you want to go.

Once you’ve found the Loss Worksheet, scroll down a little more than half-way to the section called “Net Capital Losses”. Look at that table and see if there is a record of the old loss in the first or second column. You would then go to the “Claimed in 2011” column in line with it and enter how much of that old loss you want to use to offset your 2011 gain.

However, if there is nothing in one of those first two columns, then it means one of two things:

1) You have not been using the same software each year and so it hasn’t updated your carryforward loss amounts. If this is the case, contact CRA and request your “Net Capital Loss carryforward amounts”. Then plug these numbers in.

OR:

2) You never reported the loss in the year it occurred. If this is the case, you must adjust your tax return for the year in which the loss occurred before trying to use that loss to offset current year gains. (so you have to file a T1 Adjustment Request).

Keep this post handy…tax season is always closer than we like to believe!

December 5, 2011 Posted by | Personal Tax, Running Your Business, tax | , , , | Leave a comment