Canadian Bookkeeping Resources

Tax Information for Bookkeepers in Canada

YOU don't have time to spend looking for basic Canadian bookkeeping and tax information that may affect your business ...

... so I go hunting and find it for you to ensure you have it at your finger tips ... when you need it.

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As a work from home bookkeeper and / or small business owner in Canada, you know tax planning happens every day throughout the year ...

It doesn't happen when you file your tax return ... but by taking the time to learn and know the rules so YOU can do all the little things needed to legally reduce your net taxable income.

This section of the website provides a series of basic Canadian bookkeeping articles that focus on:

1. income tax return reporting for the sole proprietor ... which is a bit different than GAAP financial statement reporting;
2. corporate tax issues for the owner managed business;
3. basic Canadian bookkeeping tax compliance information; and
4. Canadian sales taxes ... GST HST in Canada.

Let's make this clear for all my visitors before I get started ... I am not a tax expert.

Welcome to Bookkeeping Essentials - The Tax!

For your convenience ... and to help you deepen your tax knowledge, this section is all about basic Canadian bookkeeping and tax information relevant to doing your books. That means you won’t find a lot about personal taxes here unless it relates to your business somehow. I will however provide a link to a great site where you will be able to find what you are looking for.

I’m not a tax expert. However, while doing Canadian bookkeeping, I have learned a bit about small business taxes along the way. Please check out my qualifications and disclaimer before you act on any information in this section.

I provide some American (U.S.) small business tax information in The Tax - U.S section of this website.

I also try to provide references to U.S. tax pages near the top of some pages. If there isn't a U.S. reference on the page you are on, it's because I haven't found a source I like yet ... but I will keep looking. A site I like for personal U.S. tax rates information is US Tax Tips.

Let's Chat About ...

To do Canadian bookkeeping requires some basic knowledge of taxes so you can properly record sales tax or payroll tax. I think it helps YOU to keep a better set of books if YOU understand a little bit about the kinds of taxes there are in Canada ... and the reason governments use one type of tax over another.

Governments use taxes not only to raise revenues but also to direct social policy. The trend in the world today is to tax consumption more than income.

David Robertson, a Canadian tax lawyer explains ... in a paper entitled Sales Tax Harmonization: The Facts & Nothing But The Facts ... that there are only three ways for a government to raise revenues:

1. When money is earned by a taxpayer ... for example income taxes, payroll taxes and profit taxes.
2. When money is spent by a taxpayer ... for example consumption taxes, sales taxes, land and property transfer taxes.
3. On the value of a taxpayer's assets ... for example property and estate taxes.

Provincial governments have four sources of revenue:

1. provincial taxes ... for example personal income taxes, corporate income taxes and sales taxes;
2. federal government transfers;
3. income from investments and government businesses ... for example the liquor board;
4. other income ... for example natural resources, fines and permit fees.

Mr. Robertson points out that "the choice between which of these taxes to impose and when is generally driven by not only the need to raise revenues for government purposes, but also the behaviours the particular government wishes to encourage or discourage.

Amongst OECD member countries, the trend has been to place more emphasis on taxing consumption and to reduce taxes on business profits and investments.

The policy reasons for this are clear. Taxation of income and profits provides a disincentive for citizens to earn more.

By reducing income taxes, government place more after-tax dollars into taxpayers’ hands, allowing them more flexibility to choose to invest that money in further income-earning activities or to use it for personal consumption.

If the taxpayer chooses the former, no further taxation is imposed. If the taxpayer chooses the latter, a consumption tax applies. In this way, the tax system provides an incentive to taxpayers to invest in further income-earning activities with the added benefit of discouraging excess consumption."

Mr. Robertson is with the firm Fasken Martineau. His paper was presented in September 2005 at the CICA Commodity Tax Symposium ... and can be found at fasken.com under Publications. Set their publication search box to 2005> Taxation> Other Resources.

I came across a reference to the article while researching something else to do with Canadian bookkeeping ... and decided to check it out.

The 75 page paper is written in a user friendly way ... which means it didn't sound "legalize" to me. I could actually follow what he was saying ... and it was really interesting and informative ... so I thought I'd share just a piece with you. I hope you enjoyed it. :0)

Basic Canadian Bookkeeping

What you will find in "The Tax" section

Tax filing deadlines and due dates ... to Canadian sales taxes guide ... as well as tax planning opportunities you work at 365 days a year.

Just click on any underlined title of your choice and you'll go right to the page.

Part 1 - Five Basic Canadian Bookkeeping Articles on ...
Home Business Taxes - Tax Primer for Sole Proprietors

A tax planning opportunity for the self-employed home based business owner so you are not caught with your pants down (so to speak) at tax time. Be aware of what is NOT tax deductible on Form T2125.

Here are the basics discussed from a Canadian bookkeeping perspective:

• Reasonable expectation of profit
• How a sole proprietor is taxed
• 13 items that are not deductible
• 8 tax deductions that have limitations
• A sidebar chat on ... What are prepaid expenses?

Canadian bookkeeping done properly assists in tax preparation. This article looks at basic tax savings and tax benefits for the self-employed work from home business owner.

Be ahead of the game this year, and find out what is legally deductible for income tax purposes. Then implement bookkeeping procedures so you capture what you need throughout the year.

Here are the basics discussed from a Canadian bookkeeping perspective:

• General rules of deductibility
• Lines 8521 through 9270 on Form T2125
• A sidebar chat on ... the difference between the accounting treatment and the tax treatment of bad debts
• A sidebar chat on ... bad debts and how they affect your GST return
• A sidebar chat on ... where to classify cash outlays on domain registration, web hosting and web design services
• CRA guides on Canadian business and professional income

A question was asked in The Bookkeeping Forum on capital cost allowance. It is an optional tax deduction that you should be aware of if you are doing Canadian bookkeeping.

Canadian bookkeeping basics is closely tied to home business taxes. Sometimes you need help ... I've put together some frequently asked questions and answers for the home based business owner who does their own bookkeeping in Canada ...

Here's a sampling of basic Canadian bookkeeping questions that relate to tax:

• Does the $.52/km employee mileage allowance include GST? Can we claim GST tax credits on this expense when paid to us personally?
• Are bookkeeping service fees tax deductible in Canada?
• Do you have to charge GST/HST on internet sales in Canada?
• Do you charge GST/HST on the sale of a business asset such as office equipment?
• Don't I pay more income tax if I voluntarily register for GST/HST?
• How do you input/report owner's draws on your personal tax return?
• Are life insurance payments a tax deduction in Canada?
• Are tax penalties a deductible expense in Canada?
• What are the rules for business use of my home phone in Canada?
• Can I claim auto expenses if I do not have business coverage?

You'll also find links to all the questions asked in The Bookkeeping Forum that relate to tax.

How sole proprietors claim home office expenses as a tax deduction when preparing their Canadian tax return. This is part of a series on Home Business Taxes - A Tax Planning Opportunity.

There is a section on "things to consider" when doing your Canadian bookkeeping so you can claim your home office expenses properly.

You will also find information on how HST affects you if your home office is in BC.

On this page, there are also links to discussions on home office expense in the The Bookkeeping Forum.

Canadian bookkeeping and tax for business use of your personal vehicle is different than the U.S. ... so don't confuse U.S. rules with Canadian rules.

This article explains how to claim your business vehicle expenses on your personal income tax return using form T2125.

The rules are complicated and inflexible. Advance tax planning is necessary to take advantage of these potential tax benefits.

Part 2 - A Basic Canadian Bookkeeping Article on ...
Owner Managed Corporations

Use the information in The Bookkeeper's Notes on CCPC as talking points with your accountant ... so you have a better feel for what kind of information you are seeking. Some of the talking points are:

• Tax Rates and Limits for Corporations
• When to Incorporate
• Personal Service Corporations / Personal Service Businesses
• Corporate WCB Owner Obligations and Services
• The Bookkeeping Forum Q&A Links Relating to Corporations
• Shareholder Loans
• Shareholder Benefits and The Company Vehicle
• Spousal Loans
• Management Fees and Salaries
• Sell or Redeem Shares
• Inactive Corporations

Part 3 - Thirteen Basic Canadian Bookkeeping Articles on ... Tax Compliance

Use this as a handy reference page on tax compliance notes, references and links. You'll find:

• current month tax compliance due dates;
• 2011/2012 Canadian tax deadlines;
• 2011 Canadian tax installment deadlines;
• 2011/2012 Canadian tax date reminders;
• chat on tax compliance;
• tax compliance responsibilities bookkeepers should know;
• what CRA considers the official receipt date.

Essentials for the hard working, self-employed business owner (acting in the role of bookkeeper). You'll find:

• the latest from the Canada Revenue Agency (CRA);
• CRA mileage rate options;
• market watch and currency converter links;
• offers from third parties like Intuit Canada;
• news items or quotes that may be of interest ... all for your convenience.

Look here for important tax compliance filing deadline notes.
You'll find due dates for:

• GST/HST
• PST
• payroll source deductions
• T4 and T4A information returns
• WCB
• Canadian business income tax returns (T1-T2125 for self-employed, T2 for CCPC)

You will also find a sidebar chat on How Our CPP System Works in the payroll section.

Look here for The Bookkeeper's Notes.
You'll find notes for:

• Employee Taxable Benefits
• Wage Loss Replacement
• Gift and Awards
• Links to Subcontractor Payments and T4A slips

Information for businesses on Canadian government compliance tax rates (current and some historical) useful to bookkeepers and work from home business owners. You'll find:

• prescribed interest rates
• federal GST/HST rates
• out of province GST/HST/PST rates
• vehicle expense mileage rates
• common business CCA rates
• employee auto allowance rates
• company vehicle rates

On the Payroll Tax Rates page, you will find:

• Payroll tax rates
• current year CPP and EI rates
• taxable employee benefits revisions

... and chats on

• How to proof CPP and EI tax rates
• What is PIER? ... And What To Do If You Get a PIER Report
• Who is excluded from paying CPP and EI premiums?
• How to pay employees with cash
• Employee or self-employed independent contractor?

I've also compiled a table of Minimum Wage Rates in Canada which include links to the provinicial and territoral goverment employment standards.

Due to the increased complexity of the place of supply rules introduced May 1, 2010, the GST HST Quick Method rates have their own page.

Reduce your fear of tax audits by understanding the process.

It is your responsibility to have knowledge of and apply the tax laws correctly, whether your return was prepared by a professional or not.

In Canada, we have a self assessing tax system. If you are caught evading tax, it is a criminal offense. Under tax law (unlike criminal law), you are guilty until proven innocent.

Your best defense is due diligence through accurate record keeping.

Included in this article is a sidebar chat on Amending Your Tax Return to Avoid Penalties if you received some additional tax slips after you filed your return.

Three additional articles that may be of interest to are:

(1) What to do when you receive a notice saying you are going to be audited.

(2) Your rights as a taxpayer in Canada. Under taxpayer relief, you will find information on forms:

• RC4288 Request for Taxpayer Relief
• T1213 Request to Reduce Tax Deductions at Source
• ISP3520 Request for Income Tax Deductions.

(3) If you haven't filed past tax returns ... or you filed an inaccurate return, learn about CRA's Voluntary Disclosure Program which grants taxpayer relief to those who satisfy the conditions.

There is information for bookkeepers on how to protect themselves against third party civil penalties ... need to know when doing Canadian bookkeeping.

Part 4 - Six Basic Canadian Bookkeeping Articles on ...
Canadian Sales Tax

This is a guide to understanding GST/HST and ITC in Canada. It explains how GST/HST works.

It also includes an index to The Bookkeeper's Reference Pages for site information on GST HST in Canada ... ... and how it applies to your business ... all in one place for your convenience.

Here is a short lesson on VAT (value added taxes) for YOU.

There is a lot of discussion and opinions on whether HST is good or bad ... whether people are for or against ... or people who want to maintain the status quo. I like to try to make an informed opinion based on my own research rather than rely on news bites. Here are just a few facts I've found when you compare provincial sales taxes to harmonized sales taxes.

Consumer and Business Spending

One difference between the taxes ... GST/HST taxes consumer spending because it is a multi stage tax which prevents double taxation and tax cascading ... while PST/RST taxes consumer and business spending because it is a single stage tax which creates double taxation and tax cascading.

Double taxation occurs when a business purchases goods and services that have PST/RST ... and then they charge and collect PST/RST when they sell the good or service .. effectively taxing the product twice ... and taxing a tax.

Tax cascading is where the business owner will raise the price of a product or service to cover the cost of the PST/RST ... so the VAT becomes embedded in the sales price.

Neutrality

Another difference between the taxes ... GST/HST taxes all types of properties and services the same way and do not influence or favor one industry over another ... PST/RST taxes properties and services differently which discriminates between industries and sectors.

An example of this in B.C. are professional services. Legal services have to charge PST, accounting services do not charge PST. HST levels the playing field ... all professional services will charge HST.

International Competitiveness

International competitiveness and the two tax types ... GST/HST removes tax from capital purchases and export sales leading to higher productivity and greater competitiveness ... PST/RST increase the domestic selling price due to tax cascading reducing export competitiveness.

I understand this to mean that GST/HST increases productivity and sales which creates jobs which increases or maintains our standard of living while PST/RST puts us at a disadvantage in international markets ... and on domestic markets if one province has GST/HST and another PST/RST.

This means that when Ontario opted for HST, B.C. was left with no option but to embrace HST if they did not want businesses (and jobs) to move to Ontario where double taxation and tax cascading were going to disappear under HST.

This ends my brief lesson on VAT. The points made are from my notes on Mr. Robertson's article mentioned earlier on this page. A little further down the page, I have an HST poll ... if you want to vote.

Following are more articles on Canadian sales tax for YOU.

This is a guide to the GST/HST registration process and how to claim your input tax credits (ITC) in Canada.

Starting your business? ... do not miss this tax planning opportunity to recover your input tax credits on your startup costs ... but you must be registered.

Already in business? ... here's a reason why you should consider voluntarily registering for GST/HST.

This article also explains how to claim missed ITCs on previously filed GST/HST returns ... and how to verify if a vendor is legally registered to collect GST/HST.

A bookkeeper's reference page for the transitioning to HST in Canada ... bookkeeping transitional rules are effective May 1, 2010. Have you setup your new sales tax rates in your software programs yet?

Canadian bookkeeping became just a bit more complicated this year when BC and Ontario decided to move to HST on July 1, 2010. Next year, once the transition has occurred, it will become less complicated again.

In this article, you'll find a high level overview of Canadian bookkeeping information about:

• Method of Accounting
• Transitional Rules
• Exemptions and Rebates
• Transitional Sales Tax Benefits
• New Place of Supply Rules

You may also want to check out Part 2 of Transitioning to HST which summarizes the government announcements / bulletins.

Canadian bookkeeping basics requires you understand GST/HST and ITC. This article explains how to claim the input tax credits for business use of your personal vehicle. Both sole proprietors and corporations are discussed.

How ITCs and capital cost allowance (CCA) for your personal vehicle are tied together.

How to run into trouble with Revenue Canada?

The five types of audit Revenue Canada performs each year.

Watch out for those lifestyle audits! The cash myth and your lifestyle.

There are only five ways to pay no tax.

Information on the latest Canadian tax cuts, tax credits and benefits are explained in an easy to understand presentation at Revenue Canada's site "Tax Cuts At Your Fingertips".

Basic Canadian Bookkeeping and Tax - Links

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