17 replies to this topic

[Rob]

I'm going to make some questions / assumptions here! Please feel free to obligue where you can:

1) I only have to start charging GST if I think i'm going to make over $30,000 a year?
2) There's many things I can write off as expenses, e.g. computer equipment, business meals ... is there any where I can get a list of these?
3) GST is the only tax I have to pay?
4) When I 'pay' myself, do I just class it as an expense, then tax myself on my income return form next April?

Thanks!!!!!

Rob

[Webmaster T]

http://www.cra-arc.gc.ca/

If you have the time call the local GST and RevCan offices they are very helpful.

[Michael]

useful tool you may like. It will help you invoice your clients and generate reports including those concerning revenue (and soon taxes).

It's free and there is a revenue generating referral program coming out for it on Monday.

you can find it here: http://www.2ndsite.biz

[jspope]

Hi Rob!

1) I only have to start charging GST if I think i'm going to make over $30,000 a year?

Yes. However, it can still be to your advantage to register for G.S.T.(Goods and Services Tax) / H.S.T. (Harmonized Sales Tax) even if you are under the $30,000 in taxable supplies. This is because you are paying G.S.T./H.S.T. on your business expenditures and these can be claimed back as Input Tax Credits.

Simpilified or Quick Methods of accounting could also work to your benefit.

2) There's many things I can write off as expenses, e.g. computer equipment, business meals ... is there any where I can get a list of these?

See Canada Revenue Agency form number T2124 (Statement of Business Activities).

Basically, reasonable expenses to earn business income are deductible. Just because it's not on the form doesn't mean it can't be deducted.

Computers are a capital asset and can only be written-off a bit at a time in Canada. This tax deduction is called Capital Cost Allowance (C.C.A.); depreciation is the related accounting term. Computer hardware and systems software (Class 10) has a 30% (declining balance) rate and computer software (Class 12) has a 100% rate (both subject to only half rates in the year of asset acquisition).

Business entertainment costs are only half deductible in Canada.

3) GST is the only tax I have to pay?

Depending on your business, you could be subject to Provincial Sales Tax and/or other taxes. In Ontario, there is a Retail Sales Tax on sales of many goods and services (including repairs and some Internet transactions).

4) When I 'pay' myself, do I just class it as an expense, then tax myself on my income return form next April?

If you are a sole proprietor, you are taxed on your net profit (not your drawings).

I hope this is helpful.

Regards,

Stephen :-)

[Rob]

Fantastic - thank you so much!!!

[Rob]

and on a similar note ..

Does anyone know if I register my business to the house I am living (my future in-laws house!! not mine). If it would have any effect on their taxes etc? I'll only do so if it has no effect at all

Thanks,

Rob

[jspope]

Hi Rob!

If you are simply sharing costs with your in-laws (i.e., contributing toward expenses) and you are not paying rent (i.e., you won't be claiming an Ontario Property Tax Credit for rent paid to them and they are not reporting what you pay them as rental income), then it would appear that they are not operating a rental property or a business out of their house. There should be no effect on them for income tax purposes.

Since you are not paying rent, you would have no deduction for home office rent. Even so, operating from a suitable area of the home can keep your costs down.

You could still deduct (write-off) business expenses such as a separate business telephone line, business Internet access, and so on, from your business income.

In the future, when you get your own place, you will be able to deduct more in the way of business use of home expenses.

You should be aware that certain businesses should not be run from a home as they are against zoning regulations or municipal bylaws. Many people decide to run a such a business anyway but they keep a low profile (i.e., they don't give their neighbours any reason to complain about their activities to the authorities).

I hope this helps.

Regards,

Stephen :-)

[Rob]

Stephen,

You're a star! Your information is invaluable are exactly what I needed.

Thank you so much again!

Rob

[jspope]

Hi Rob!

You're welcome!

Since you are located in Ontario, here is the website for the
Ontario Ministry of Finance. It contains such information as:

• Provincial Budget
• Forms and Publications
• Corporations Tax
• Retail Sales Tax
• and much more!

Regards,

Stephen :-)

[kology]

One last point that no-one has covered yet. In Canada we have a few options and each comes with its own tax implications.

You need to decided if you want to run the business as a sole proprietor, a partnership or a corporation.

The partnership and corporation allow for income splitting. Very helpful if your spouse/partner isn't working as you can move yourself to a lower tax bracket.

Partnership income is simply reported as part of both partners income tax.

Incorporating is an easy thing to do. You can go to a Lawyer or (I'll post it later once I find the URL) go to a site and do it yourself for under $100 if my memory is working. The benefit of incorporation is you can start limiting your liability. This means if a customer wants to sue you, they have a harder time as the contract was between the client and your company.

I've run all three at one time or another and now as a corporation I need an accountant to handle all the reporting. So the last piece of advise is find a good account (e-mail me privately and I can give you some in Toronto) and seek out their opinion before you decided. Most should meet with you for free or a small fee and they can help you decided which fits you best.

[jspope]

Hi!

Although it is less complicated to operate as a sole proprietor, it is more dangerous because of the unlimited liability. If you're really strapped for cash and this is the only way you can start your business, you might consider it. As soon as finances permit, I would recommend incorporating. In the meantime, be very careful and make sure you are adequately insured.

You can also income split with a proprietorship. The payment of reasonable wages to your spouse (or other significant other) and children are tax deductible. Just be sure to remit the required payroll tax deductions.

Partnerships, of course, are even more dangerous because you have the additional liability exposure of your partner(s).

I have some clients where the husband and wife are partners and split income for tax purposes. I still recommend that they incorporate for the limited liability protection.

If you decide to incorporate your business, you would have to decide whether to incorporate provincially or federally. There are good reasons why some incorporate federally; this is something you might want to discuss with a lawyer. However, many incorporate provincially.

If you want to form your own Ontario corporation without a lawyer to save costs, I recommend "Incorporation and Business Guide for Ontario" ("How to form your own corporation Includes tax advantages to incorporating"), by M. Stephen Georgas, LL.B., published by International Self-Counsel Press Ltd.

You can now also file Articles of Incorporation electronically through the Internet.

Other forms of organization include limited partnerships and joint ventures.

Regards,

Stephen :-)

[cyanide]

WOW

I have nothing to add. I think it's all covered
Nice posts, guys. It always seems a bit difficult to find this kind of info for us Canucks

[mcanerin]

Based on the fact that this thread contained a large amount of extremely helpful advice in a relatively short span, I'm going to pin it so us poor canucks can actually get some help around here

Well done, everyone!

Ian

[Buck OBrien]

Accounting question...first post here, feel free to let me know if I'm doing it wrong guys....
I'm confused if I should be getting Input Tax Credits on GST I pay to rent office equipment I use in my business. How do I account for GST paid on office equipment I rent in my business? Do I expense the cost without GST separately or total the rental cost and GST together and post? Thanks! Barry

[jspope]

Hi Buck!

Here is a typical entry for such a transaction.

Dr. Equipment Rental Expense $108.00
Dr. G.S.T. Payable 7.00
Cr. Bank $115.00

You paid out $115.00, of which $108.00 is equipment rental (say $100.00 plus $8.00 Provincial Retail Sales Tax) and $7.00 is Goods and Services Tax.

The G.S.T. paid is not really an expense (although it is an expenditure). You will deduct this from the G.S.T. you collect. It is an amount receivable from the Government of Canada; alternatively, view it as a reduction of your liability to the government.

Caution: This is a simplification of a complex subject. Quick/simplified methods, H.S.T., asset additions, percentage business use, how your accountant wants you to do the books, and other factors should be considered.

Many accounting software packages will help you calculate the G.S.T. and post entries so that you don't have to be a full charge bookkeeper.

Regards,

Stephen :-)