Tax Time FAQs
Hello All,
It is now April and we are getting closer to the tax filing deadline. Some of us have anxiety just thinking about it and have understandably decided to procrastinate as the only reasonable response :). Of course there are those of you who have already filed their tax returns, thereby (mostly) eliminating their stress and should be commended for their judiciousness.
As I’ve been immersed in taxes (for what seems like an eternity), I have received a number of questions. I thought I would share a handful of these with you:
When is the deadline to file my tax return?
The deadline to file your taxes is Thursday, April 30th unless you or your spouse are reporting business income in which case the deadline is Monday, June 17th.
What happens if I don’t file by the deadline?
If you don’t file by the deadline you are charged an immediate penalty of 5% of the balance due + 1% for each additional month that you are late (up to 12 months). You are also charged interest at the prescribed rate which is currently 10% (annually).
Since the penalties and interest are only payable on the amount of tax due, you can avoid or reduce the penalty, by either filing by the due date (even if you can’t pay) or paying an estimate of taxes payable (if you can’t file)
Do I have report income even though I’m not registered as a business?
Yes, any income that you earn whether it is freelance work, ads on a website, writing, and the myriad of other side hustles, gigs, selling etc. for you haven’t received a T4 must be reported on your tax return on schedule T2125. You are also permitted to claim business deductions.
Can I deduct expenses if I’m not registered or prior to official registration as a sole proprietorship?
You can deduct expenses that relate to earning income from your business even if they were incurred prior to official registration.
What is the difference between a T4 and a T4A
A T4 is received by employees who are paid wages (salaries or hourly). A T4 will typically show your gross pay and deductions including incomes taxes, CPP (or QPP), Employment insurance etc.
A T4A can be issued for a variety of purposes including death benefits, lump sum payments, RESPs etc. However, more commonly T4As are issued to businesses that have provided services and are usually reflected on Box 48. It is very important that this is reported on the T2125 on the line item that corresponds to T4As received rather than included in total business income. If not, CRA will add this to your notice of assessment as additional income received but not reported.
Do I report income on RRSPs and TFSAs?
Income earned in your RRSP and TFSA account is not taxable and is not required to be reported on your tax return.
Do I report income on investments that are not in registered accounts
Yes, you must report income relating to unregistered (non RRSP and TFSA) investments. This includes dividends, interest, other income, foreign income etc. It also very importantly includes sales of investments (shares, mutual funds etc.) for which you will receive a T5008 showing the total proceeds and the total cost. The difference is either a capital gain or loss (of which only 50% is taxable).
Can I claim babysitting expenses?
Yes, you can claim babysitting expenses as long as you receive a receipt from your babysitter which includes their SIN, name , amount paid etc. (correspondingly, the babysitter must report their income as business income on their tax returns). There are some restrictions which can be found in this article on childcare expenses.
Can I claim home office expenses as an employee?
In 2023, you can no longer claim the $2 per day that was allowed during the Covid years. You can however claim expenses for your home by having your employer complete the T2200.
Can I claim home office expenses if I have business income (as self employed, freelancer, small business owner etc.)
CRA allows you to claim home office expenses if you have business income. You would calculate the percentage of your home that relates exclusively to your office space (recommended) and apply that to your rent or mortgage interest, utilities.
How do I file my GST-QST return
It is important to note that the GST-QST return is completely separate from the income tax return and is filed separately. You can file the GST/HST return through CRA my business account or online via your banks business tax filing service. There is also a paper form, but this is being deprecated starting in 2024.
If you have other questions, you can email me or tweet at me on X and I will address them in my next newsletter or directly in X.
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From the Blog
To complement my newsletter article, I have written a new blog post detailing the tax items, documents etc. that apply to the vast majority of taxpayers.
Also, I updated my post on home office expenses for business owners.
Make Your Taxes Easier with this Detailed Checklist
The deadline to file tax returns is quickly approaching, resulting in various degrees anxiety for some taxpayers and accountants. The good news is that the stress can be managed fairly easily with
Guidance on Deducting Home Office Expenses
One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to
Business/Finance Stuff:
Google Cracking Down on AI Content? They are going to try to “reduce “low-quality, unoriginal content” in search results by 40 percent. It will focus on reducing what the company calls “scaled content abuse,” which is when bad actors flood the internet with massive amounts of articles and blog posts designed to game search engines”.
We’ll see how that works out.
Government of Canada Business Loan Program: Applies to small businesses or start-ups operating in Canada, with gross annual revenues of $10 million or less and can be used to finance the following:
purchase or improvement of land or buildings used for commercial purposes
purchase or improvement of new or used equipment
purchase of new or existing leasehold improvements, i.e., renovations to a leased property by a tenant
intangible assets and working capital costs
Tax Stuff:
Bare Trust Reporting Requirements Changed: This was a pretty big deal in the world of tax. On March 28, 2024 (two days before the deadline) CRA announced that bare trusts are exempt from trust reporting requirements for 2023 (which wasn’t great for all the people who had already filed).
Should CRA Implement Automatic Tax Filing? Especially for low income and vulnerable people - since CRA already has most of your information, it can simply prepare your tax return (similar to other jurisidictions such as the UK).
Should business owners pay themselves dividends to avoid CPP? An interesting article that reviews the value of Canada Pension Plan contributions and whether this is a good strategy.
QuickBooks Tutorials:
My latest tutorial shows you how to enter home office expenses via a journal entry. You can read this in conjunction with my post on deducting business home office expenses.
How to Enter Home Office Expenses in QBO
A variety of other tutorials can be found at my channel here
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Also, if you have any questions about QuickBooks/Xero/Excel or finance in general for which you would like to see a video, please either leave them in the comments section of any of the videos (I see them all) OR email me directly at ronika@montrealfinancial.ca
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A Straightforward Tax Guide For Canadian Small Business Owners
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Everything Canadian Business Owners Need to Know about Dividends and How to Pay Themselves
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Everything You Need to Know About Starting Your Sole Proprietorship
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Wishing everyone an amazing, pre solar eclipse, weekend (and hope you are somewhere where you get to see it)!
Ronika
