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

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

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

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

Where do I enter tips on my tax return? What percentage do I report?

Where do I enter tips on my Canadian tax return?

Put them on Line 104: Other Employment Income. But before you do this, double check that your employer does not report any of your tips on your T4.  Some employers pay a set amount of tips to their employees and will usually include these amounts in Box 14 on your T4 slip. Sometimes they may include those amounts that customers leave as tips on credit cards. Having to report them once is bad enough.

Do not enter tips on Line 130: Other Income, unless you’ve got a crush on your local CRA auditor. (Hey, it could happen).

What percentage of my tips do I have to report?

100%. If you don’t know exactly how much in tips you received during the year, estimate as accurately as you can. Don’t estimate it as 10% of your annual wages (Gross Pay) because Stan Superserver told you that’s what he does, and he has never had a problem.

Read this post on tips for more details.

Help out your fellow servers by taking this 1-question survey about how much your tips are.

February 6, 2012 Posted by | canada, Personal Tax, Random Questions, tips | Leave a comment