Canuckbusiness

Start a business, Do your taxes, Save money

Can I deduct safety deposit boxes on my 2013 personal taxes?

Yep! It’s still good. But starting in 2014 it’s a no-no. Here’s the details.

Oh, and in case you’re wondering, you enter it on Schedule 4. Scroll down until you see number III.

April 2, 2014 Posted by | Personal Tax, Random Questions, tax, tips | , , , | Leave a comment

Where do I enter a T5008 slip on my tax return?

“I have a trading account and my bank sent me a T5008 slip and a trading summary for the year. Do I have to enter both of these on my tax return or just one? If so, which one?”

Ack! Whatever you do, do not enter both! You’ll end up paying double the tax. Now that I have your attention…

So what is a T5008 slip anyway?

You mean besides a slip I absolutely hate? I know, hate is a strong word. I wish I had the vocabulary to come up with something stronger.

You see, the T5008 is not sent out by your broker or bank to “assist you in preparing your taxes,” despite what the letter says that accompanies the slip. The Canada Revenue Agency requires your broker to prepare and send these out to you whenever certain types of trades/transactions occur. And, of course, your broker must send a copy of the T5008 slip to the CRA. So, the T5008 slip is really just a sneaky way for the CRA to keep an eye on people selling stocks.

What information is on the T5008?

The selling price of the security is always on the slip. The CRA knows exactly how much you received in proceeds for dumping the latest dog. As for the cost of the security (or ACB, adjusted cost base in tax talk) sometimes it’s on the slip, sometimes it’s not. Occasionally it may even be accurate. Usually it’s not.

So…if the cost is not correct on the slip, how do I calculate my taxable gain on my tax return?

I know! Right?? This is further complicated by the fact that not all types of trades need to be recorded on T5008’s, so often they are not even an accurate portrayal of everything a taxpayer has sold in a given year. The taxpayer is required by law to calculate accurate ACB’s of any stocks bought and sold throughout the taxation year. Relying only on the flimsy T5008’s is a recipe for disaster.

So what do you use the T5008 for then?

I put my coffee cup on it. Works great. Then I use the trading summary to enter all my trades for the year on Schedule 3. Just remember to use a weighted average when calculating the ACB’s of any stocks sold in the year. I’ll talk more about that in another post since it deserves its own.

For now, just remember what to use the T5008 for.

Nothing.

 

March 28, 2014 Posted by | Personal Tax, Random Questions, tax | , , | 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

Chainsaw deduction for forestry worker employees

Do you work in the forestry industry? Did you buy a new chainsaw or trimmer? You can deduct the cost of these (and their operating expenses) on your tax return on Line 229. To do so, you must meet these requirements:

  • You work in forestry operations.
  • You use a power saw to earn your employment income.
  • You had to pay for the power saw under your contract of employment and your employer will not be reimbursing you.

You should also get a T-2200 form signed by your employer. You do not have to file this with your return but you should keep one at home in case CRA decides to ask you for it.

Go here for more details.

 

October 25, 2012 Posted by | Personal Tax, tax, tips | | Leave a comment

These people can file their taxes online for FREE

Students, seniors, first-time filers, and people with a total family income under $20,000 can use UFile FREE!

FREE. Ahhh…that’s a beautiful word, isn’t it? If you fit into one of these groups of taxpayers go here and read more about how you can file your tax return online for free.

So, no excuses. Get those taxes over and done with. Get that refund. Build up your RRSP contribution room. Apply for those GST refunds. Register with Elections Canada. And if you think you have a balance due, get them done anyway! Think of how much you’ll save on interest and penalties!

Sorry, that’s the best pep-talk I can come up with for filing your taxes.

Did I mention it’s free?

www.drtax.ca/en/UFile/tips-and-tools/UFilefreefiling

April 22, 2012 Posted by | canada, Personal Tax, tax | , , , , | 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

What year should I carry my current year capital loss back to?

(Before or after reading this post you may want to refresh your memory with: What do I do with a capital loss?)

 

Here is a great question that I thought I’d pull out of the comments and make into a post. I’m sure many of you out there will find it useful:

My specific question is not how to facilitate the carryback loss (T1A), but rather which year going back is optimal to get the largest return?

Year -3 net income 50,000
Year -2 net income 80,000
Year -1 net income 100,000
This year (10,000) loss

Will I get more of a return for my loss if I apply it to Last year (Year-1) since it was my highest earning year?

At first glance it would seem to make sense to carry back his loss to the year that has the highest income (in this case Year 1: $100,000), but let’s look a little deeper to make sure. I’m going to walk you through my thought process here, which is usually a pretty murky bog, but I’ll try my best.

“Net Capital Losses” and “Capital Losses” are different animals.

1. What kind of loss are we dealing with?

“This year (10,000) loss”.

Is this a “capital loss” or a “net capital loss”? For a detailed description of how to calculate capital gains and losses go here. But generally, this should clear things up:

capital gain OR capital loss = proceeds – cost – other outlays

taxable capital gain OR net capital loss = (proceeds – cost – other outlays) x 50%

That 50% is the “capital gains inclusion rate” for the year in which the transaction took place. In other words, you only get taxed on 50% of capital gains, as opposed to 100% on employment income or interest income.

For this example, I’m going to assume that the above “$10,000 loss” is actually only a capital loss. So that would give us a net capital loss of $10,000 x 50% = $5,000 .

2. Did he have any “taxable capital gains” in the previous 3 years that he can write off this year’s “net capital loss” against?

Year – 3 net income 50,000
Year – 2 net income 80,000
Year – 1 net income 100,000

Unfortunately, the above only tells me what the person’s net income for the year was. What I really need to know is what were the person’s taxable capital gains (Line 127 on the tax return) for each of those years. Why? Because capital losses can only be applied against capital gains. This means you cannot decrease any other type of income (such as employment income) with a capital loss.

So, for the purposes of this example, let’s assume the following:

Year – 3 taxable income $50,000, of which $5,000 is a taxable capital gain (L127)
Year – 2 taxable income $80,000, of which $7,000 is a taxable capital gain (L127)
Year – 1 taxable income $100,000, of which $10,000 is a taxable capital gain (L127)

Using the above numbers, we see that he had enough gains that he could carry back his current year’s loss to any one of the preceding three years.

3. Find his tax brackets: Federal and Provincial

As we all know, we have federal taxes and provincial taxes here in Canada. And they change every year. Go here to find yours for this year or previous years: Income tax rates in Canada (tax brackets)

Federal tax brackets:

  • 15% on the first $41,544 of taxable income, +
  • 22% on the next $41,544 of taxable income (on the portion of taxable income between $41,544 and $83,088), +
  • 26% on the next $45,712 of taxable income (on the portion of taxable income between $83,088 and $128,800), +
  • 29% of taxable income over $128,800

BC enjoys 4 tax brackets:

  • 5.06% on the first $36,146 of taxable income, +
  • 7.7% on the next $36,147, + 10.5% on the next $10,708, +
  • 12.29% on the next $17,786, +
  • 14.7% on the amount over $100,787
Ontario is lucky to only have 3:
  • 5.05% on the first $37,774 of taxable income, +
  • 9.15% on the next $37,776, +
  • 11.16% on the amount over $75,550

But Alberta only has 1: a flat rate of 10%. Looks like I found the one I’ll be using for my example.

4. Calculate tax refunds

I’m going to assume my friend is from Alberta and enjoys a flat-rate provincial fleecing of 10%. So let’s calculate the different possible refunds.

Carry loss back to Year 3 (taxable income $50,000):
Federal taxes = $5,000 x 22% = $1100, AB taxes = $5,000 X 10% = $500
Total Refund= $1,600

Carry loss back to Year 2 (taxable income $80,000):
Federal taxes = $5,000 x 22% = $1100, AB taxes = $5,000 X 10% = $500
Total Refund= $1,600

Carry loss back to Year 1 (taxable income $100,000):
Federal taxes = $5,000 x 26% = $1300, AB taxes = $5,000 X 10% = $500
Total Refund= $1,800

Suspicion Confirmed

As we suspected, he will be better off to carry his loss back to Year 1. He will gain an extra $200 by doing so in this particular case.

However, if we do this, we will forever lose access to the gains in Year 3 (remember, you can only carry capital losses back three years). So if we are pretty sure we are going to have capital losses next year, we may want to carry the current year’s losses all the way back to Year 3, since there is only a $200 difference. But if this year’s loss is a rare event, it makes more sense to get the biggest bang for the loss and carry it back to the year with the highest taxable income.

March 6, 2012 Posted by | loss carryback, Personal Tax, tax, tips | , , , , , | 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