Tax Guide for Small Businesses

female small business owner using laptop and looking at camera in shop

Paying your taxes as an individual is one thing but once you start running a small business, it’s a whole different game!

There are many aspects of a small business to take into consideration when it comes to filing your taxes from what you can deduct to how to manage employee payroll.

But don’t worry, we have you covered! Liu & Associates is a knowledgeable accounting firm with years of experience filing small business taxes.

Let our expertise guide you through the process with this tax guide for small businesses:

Common Deductions for Small Businesses

While there are many deductions you can take advantage of as a small business, there are the common ones you should take into consideration.

Keep in mind that a small business accountant can help you explore all possible deductions for your small business and maximize your tax return!

Rent and Property Taxes

You can claim property taxes that you pay on your business building. However, if you work from home, your property taxes need to be claimed under home office or business-use-of-home expenses.

Likewise, if you rent your business property or home, you can claim this amount as well. Keep in mind for at-home business situations, you can only claim a percentage of your home office compared to the total space of your home.

It’s important to keep a record of rent receipts, lease agreements, and property tax receipts in case you are audited by the Canada Revenue Agency.

Repairs and Maintenance

As a small business, you can also claim expenses related to repairs and maintenance but these need to be carried out in order to increase your business earnings.

Labor costs related to repairs and maintenance are capitalized expenses, meaning that you can only claim a percentage of those costs over a period of time via amortization or depreciation.

Repairs reimbursed through your insurance company cannot be claimed on your small business taxes.

Salaries and Wages

You can deduct the salary and wages you pay to your employees as well as other payroll-related expenses. A small business accountant in Edmonton, such as Liu & Associates, can help you ensure these amounts are properly claimed.

Vehicles

If your small business makes use of a company vehicle, you can write off expenses related to the vehicle such as fuel, oil, insurance, lease payments, parking fees, repairs, maintenance, and registration fees.

These are considered capital cost allowances (CCA) because a vehicle is considered depreciable property.

When you claim expenses related to your company vehicle, the amount your claim is proportional to the amount of business mileage compared to total mileage throughout the year. For this reason, you will have to keep a log detailing both business and personal use of the vehicle.

Home Office Costs

When you run your small business from your home, you can claim deductions on expenses related to your home office space including mortgage interest, utilities, property taxes, home insurance, repairs, and maintenance.

The amount you can write off depends on the size of your office compared to the size of your home.

Accounting Expenses

Fortunately, you can also claim accounting expenses when it comes to your small business taxes.

Having a small business accountant in Edmonton is beneficial since you can claim accounting-related fees on your income tax while ensuring your finances are properly handled!

Important Tax Dates and Deadlines for Canada

If you are self-employed, you do not have to submit your taxes by April 30, which applies to individual tax returns. Instead, you have until June 15th.

For sole-proprietors or partnerships, you must have your taxes submitted by the beginning of May if your fiscal year matches the calender year. Otherwise, your small business taxes are due six months after the end of your fiscal year.

Responsibilities for Payroll and Employees

If your small business has employees, you are required to collect and remit deductions from your employee’s pay as well as make contributions in addition to employee deductions.

You must also report your employees’ earnings and pay tax on the income you earn.

Deducting Employee Tax from Payroll

As an employer, you are required to deduct income tax as well as CPP (Canada Pension Plan) contributions and EI (Employment Insurance) premiums. You must also match the CPP amounts deducted and contribute to your employees’ EI premiums.

The amount of deductions and contributions depends on the employee’s income. To find out how much you have to contribute or deduct, you can always refer to a small business accountant in Edmonton to help you with corporate tax planning or contact the CRA.

Reporting Employee Earnings

When reporting employee earnings, you are required to fill out special forms to report salaries, wages, and taxable benefits. You must also fill out a T4 to provide to your employees by the end of February for their individual tax returns.

Deadlines

When remitting income tax that has been deducted from your employees’ pay, the deadline is generally the 15th of the following month. If the 15th falls on a weekend, payment is due by the next business day.

If you do not remit these deductions on time, penalties may apply.

However, some small businesses are allowed to do this on a quarterly basis but you have to apply for this program through the CRA.

Getting Help From an Accountant or Bookkeeper

When it comes to corporate tax preparation for small businesses, there are a lot of moving parts and not filing your taxes correctly can result in penalties and interest.

This is why it’s important to have a small business accountant in Edmonton by your side! Our team at Liu & Associates can help you prepare your small business taxes from start to finish.

Our expertise means that your finances will remain in order throughout the year, ensuring that tax time is a breeze!

If you’re ready to get started, feel free to contact us today. Our dedicated team is ready to answer all of your questions regarding small business taxes.

We look forward to hearing from you!

When To Consider Corporate Restructuring

Image of business partners discussing documents and ideas at meeting

Corporate restructuring is a great opportunity to examine your business models and create a plan that will facilitate growth and optimize your business for the long term.

Corporate restructuring is a process that significantly modifies the financial and operational aspects of a company.

While this action is typically taken when a company is facing financial hardships, a company doesn’t have to be in distress to benefit from a restructuring plan.

A corporate restructure even when your business is successful can have major benefits!

Overall, corporate restructuring is done to modify a company’s operation, structure, or debt to limit financial harm or facilitate growth.

What Does Corporate Restructuring Involve?

During a corporate restructuring, the operations, departments, processes, or even ownership may change. However, this can enable a business to become more integrated and profitable.

The results of a corporate restructuring vary according to how the business operates and the reasons for making a change.

It could result in changes to procedures, networks, locations, and computer systems. It’s possible that jobs may be eliminated or employees laid off.

Corporate restructuring is a long and detailed process as both the internal and external structures of a business are altered and adjusted.

Once completed, however, business operations will become smoother and more economically sound putting the company in a better position to attain its goals.

4 Reasons Why You Should Consider Corporate Restructuring For Your Business:

Teamwork with business people analysis cost graph on desk at meeting room.

Corporate structuring should not be undertaken lighting. To give you an idea of when it is necessary, here are some situations in which you should consider corporate restructuring:

1. Your Business is Expanding or Refocusing

The business world is dynamic and there’s no predicting when external factors can negatively impact a business or inspire it to change.

Changing the way a business operates through a corporate restructuring can help the business adapt to change.

For instance, the COVID-19 pandemic enforced the need for better telecommunication, improved working systems, revised employee policies, and the accommodation of remote working.

Many companies sought corporate restructuring to ensure that their business continued to thrive during this time.

Likewise, an expansion of a business requires a certain degree of reorganization. As a business grows, it may require setting up new departments, appointing new management, and developing different leadership styles – all of which can be achieved through corporate restructuring.

2. New Shareholders Are Being Brought In

When new shareholders are brought into your business, a company restructuring is necessary to ensure you retain total control of your business.

Restructuring can help you manage the way that dividends are allocated as well as protect your capital contribution to the company.

During the restructuring, you may want to consider issuing different classes to new investors so that voting rights are tailored in a way so that important decisions remain with you.

3. The Company is Becoming Publicly Traded

Companies can become publicly traded through two channels: IPO and Direct Listings.

During the IPO process, new shares of the company are brought to market by an investment bank. Direct listings involve employees selling their shares directly to the general public with no involvement from an investment bank.

Becoming a publicly-traded company is exciting but you don’t want to get too caught up in that excitement. 

Instead, it’s important to consider how a corporate restructuring in this situation can help you optimize your stock decisions as you make a successful entrance into the public market.

4. Your Business is Under Corporate Financial Distress

Corporate restructuring can also be beneficial when your company is experiencing financial distress.

Seeking expert advice can help save your company when faced with the following challenges:

  • Poor Competitiveness
  • Stagnated Growth
  • Significant Revenue Drop
  • Shortage of Cash-Flow
  • Poor Management
  • Untethered Expenses
  • Dependence on Debt
  • Inefficient Business Structure
  • Diminishing Customer Base
  • Decline in Sales

When you can recognize the signs that your business is heading toward financial hardship, you can act quickly and implement a business restructuring that will allow you to restrategize and regain profitability.

Professional Corporate Restructuring Services

Restructuring an entire company is no easy task. However, our experts at Liu & Associates can help you create a customized path to help your business evolve and succeed.

By going over your current financial structure, our team can help you determine the best course of action, whether you are looking to downsize or expand.

Our corporate restructuring service includes changing legal ownership of a company, switching corporate tax structures, strengthening capital structures, and more!

Let us take care of planning and implementing your corporate restructuring plan. 

Get in touch with our experienced and knowledgeable team for more information or book an appointment to get started today.

Corporate Tax Planning: 5 Things To Know

Top view of Finance business people or accountants point to the graph and use a calculator to calculate company income, expenses, taxes, and employee bonuses

When you own a corporation, proper tax planning plays an essential role when it comes to making strategic decisions.

The main goal is to increase your business’s tax efficiency and remain competitive in your industry.

Incorporating proper tax planning into your regular operations ensures that your company is run legitimately. It also allows you to reduce your tax costs and benefit from higher earnings.

Unlike personal tax returns, which are relatively simple to prepare, corporate taxes are complex, and not planning them properly, or trying to do them yourself, could result in costly mistakes.

What is Corporate Tax Planning?

When it comes to planning your corporate taxes, it involves more than estimating your end-of-year tax liability to know how much you should budget to pay your taxes.

Proper planning involves looking at your entire financial situation so that you can pay the least amount of taxes possible.

It takes into account expense planning, the timing of purchases, and how you pay yourself as well as dedication and credit opportunities.

Corporate tax planning also helps you choose the best investment and retirement plans to complement your business’s financial strategy and filing status.

1. You Can Take Advantage of Grants and Subsidies

The government offers grants and subsidies to help corporations receive rebates when buying depreciable property. This allows you to subtract the amount of the grant or subsidy from your property’s capital costs.

For instance, there is the “input tax credit” which is a form of government assistance that allows you to deduct the amount of the credit from the cost of a company vehicle.

There are other incentives you can apply for from non-government agencies when it comes to purchasing a depreciable property.

You can always contact our team of professional accountants at Liu & Associates for more information about grants and subsidies for corporations.

2. You Can Save Money and Grow Your Company

enior managers thinking and meeting with business teamwork at office.Team join forces for project.

As we mentioned above, one of the main objectives of corporate tax planning is to reduce the amount of tax your business pays by taking advantage of as many deductibles as possible.

When you know your tax liabilities, you can then reinvest your savings back into your business to facilitate its growth!

Corporate tax planning also provides insights into your business so you can assess the bigger picture such as whether or not the structure of your business needs to change and where your potential profit areas are.

3. How You Pay Yourself Can Save You On Taxes

When you own an incorporated business, you need to determine the optimal mix of dividends and salary to pay yourself.

In some cases, dividends may receive preferential tax treatments or allow you to pay yourself tax-free.

In others, it could be more beneficial to pay yourself a salary.

There are many factors that affect this decision that is based on your business’s unique operations. Again, an expert accountant can help guide you when making this decision.

4. There Are COVID-19 Relief Funds You Can Tap Into

While many COVID-19 relief programs offered by the government have ended, there are still others available that you can take advantage of when planning your corporate taxes:

  • THRP (Tourism and Hospitality Recovery Program): This program provides support to businesses in the tourism industry when it comes to wages and rent. 
  • HBRP (Hardest Hit Business Recovery Program): The HBRP provides up to 50% of rent and wage support for eligible businesses.
  • Lockdown Support: If your business has to close due to a public health lockdown and causes significant revenue loss, you can apply for this subsidy.

If you do take advantage of COVID-19 relief funds, keep in mind that some of these benefits are considered to be taxable income. 

5. An Expert Accountant Can Make the Process Easier

The process of filing a corporate income tax return is significantly more complicated than filing a personal tax return. Hiring an accounting firm will give you peace of mind that the process is handled correctly.

Accountants do more than simply handle money. They are professionally trained in tax preparation and have a full understanding of tax laws and how to organize your corporate income.

Plus, accounting experts know what additional tax credits your business can take advantage of in order to secure you a larger return!

So when it comes to planning your corporate taxes, there are innumerable benefits to having a professional accountant organize your finances to help your business save and grow.

Plan Your Corporate Taxes With a Tax Professional

Investing in a professional accountant can help you save money and avoid costly mistakes including penalties and tax audits.

For more information on how you can get started with your corporate tax planning, contact our expert team at Liu & Associates.

The CEWS Subsidy + Tax Audits: How to Prepare For an Audit

The Canada Emergency Wage Subsidy (CEWS) was introduced by the Canadian government in March of 2020 to help employers who were adversely impacted by COVID-19.

This subsidy covers up to 75% of a business’s employees’ eligible earnings and encourages employers to retain their workers despite a drop in revenue due to closures.

However, the CRA will audit employers who received the CEWS subsidy to ensure that they did not receive more money than they were eligible for.

The process can be arduous and require a copious amount of documentation.

Although claiming the CEWS does not guarantee that your business will be audited, it is best to prepare so the process goes smoothly.

To help you to better understand what to expect when it comes to a CEWS audit and how to best prepare, check out the guide below:

CEWS Repayments and Audits

In April of 2020, an amendment was made to Canada’s Income Tax Act to include the CEWS along with some new tax rules.

These new rules allow the Minister power to determine if an employer was overpaid and issue a notice of repayment if necessary.

Those who received the CEWS may have to repay the subsidy if they canceled their application, made a calculation error in the application, or if the application was reduced or denied. 

In order to determine if any of these situations have occurred, the CRA is at liberty to perform an audit. This process can result in the CRA requesting access to your company’s details such as corporate and financial records.

What Is the CRA Looking For When It Comes to the CEWS?

For the most part, when it comes to a CEWS audit, the CRA is looking to review the following documentation and information:

  • Corporate Records: These records include any documents related to the CEWS claim as well as any changes related to the type and status of the business since 2019.
  • Revenues for 2019 and 2020: The CRA will seek information regarding the business’s revenue prior to the pandemic such as sales reports and qualifying revenue for the CEWS.
  • Payroll Information: The CRA also wants to see payroll journals, timesheets, employment contracts, and proofs of payments to employees.

The CRA may also request additional information related to other subsidies and other government programs that could impact the application for the CEWS.

How Can I Prepare for an Audit?

Man hand pick up Stack overload document report paper with colorful paperclip, business and paperless concept.

Just because the CRA is audited CEWS applications and payments doesn’t mean your business is guaranteed to experience one.

However, preparing for an audit can be a stressful task, so we suggest you take the time to prepare in the following manner:

Document Everything

As soon as you prepare your CEWS claim, keep track of everything. Because the CEWS was pushed out in a hurry, it’s possible that the rules surrounding it may be modified at any time.

Keep copies of all the documentation you referred to when completing the CEWS application as well as a hard copy of the instructions provided to you by the CRA at the time you filed for the subsidy.

Keep Aside Confidential Information

The CRA does not have the authority to access documents that are protected by client privilege.

This means that any sensitive and private information regarding your clients is off the table when it comes to a CRA audit. For example, if you are a lawyer this would include any communication between you and your client, the client’s case file, etc.

Because these documents are private and not required during an audit, ensure they are stored separately to avoid any mistakes.

Have One Point of Contact With the CRA

To ensure the audit process goes smoothly without inconsistencies or misinformation, appoint one person from your business to communicate with the CRA.

Additionally, all exchanges with the CRA should be in writing since the process can take a year or more to complete. 

How Long Do I Have to Provide the Necessary Information?

Gathering the required documentation can be complex and extensive with the CRA not giving you much time to do so. In fact, the CRA generally requires the necessary information within 10 business days.

While you can request an extension, the CRA is merely looking for information you already have. If you have it prepared and organized, meeting this deadline is completely realistic.

Failure to comply with the CRA during the audit process can result in a “gross negligence penalty” that could amount to 50% of the difference between the amount of CEWS you claimed and the amount of CEWS you were entitled to.

Conclusion

If you have received an audit letter in relation to the CEWS subsidy, it’s important to consult an expert accountant to ensure the proper organization of documentation.

For more information on CEWS audits, don’t hesitate to contact our team of professionals at Liu & Associates.

The Connection Between Corporate Finances and Individual Finances

They say that you should never mix business with pleasure – but when it comes to finances, the two are connected in a number of ways.

Because of the connection between corporate finances and individual finances, it’s important to understand that, while you can approach both in very similar ways, it’s not always a good idea to allow the two to mix.

Before we talk about how to keep your corporate and individual finances separate, let’s first look at their similarities and differences:

Similarities Between Corporate Finances and Individual Finances

The similarities between corporate finances and individual finances all come down to money management. No matter the amount sitting in your accounts, how you handle it determines your overall financial success! 

Discipline

When it comes to managing finances, both corporate and individual, discipline is important. In order to be successful, you need to focus on spending only when necessary.

If you’re running a company, it can be tempting to spend on unnecessary assets but you need to limit your spending to expenses that are pertinent to running and growing your business.

For personal finances, it’s important to curb spending in order to build up savings.

Investment

Whether you are looking to expand your business or your bank account, you need to make investments in order to grow your funds. In your personal life, this could mean purchasing a home. In business, investing could involve hiring new staff or purchasing new equipment.

Budgeting

Both personal and business finances require budgeting. This involves laying out how much money comes in versus how much goes out and seeing what is left over.

Budgeting takes time and effort – even more so for businesses and companies. In order to effectively budget, you need to involve formal documentation such as income statements and balance statements.

Overall, budgeting requires you to set a spending limit and stick to it so you can achieve your financial goals over time.

Differences Between Corporate Finances and Individual Finances

It’s great that you can approach both corporate finances and individual finances in the same way when it comes to budgeting and investment, but there are some ways that business finances are handled that can be detrimental to an individual.

Temptation

We talked about how corporate finances and individual finances both involve a degree of discipline but one notable difference between the two is that managing personal finances comes with significantly more temptations.

Business finances tend to be more impersonal and purchases are made in the best interest of growth and success.

However, individuals tend to struggle with the temptation to make unwise or extravagant purchases.

Corporate financial decisions are usually made more rationally than personal financial decisions

Collaboration

When a business makes financial decisions, it usually comes as the result of collaborating with staff members, co-owners, financial offers, and accountants. This is to ensure that spending solutions make sense for the company.

Individuals, however, are often not required to confer with family members or any other person to make financial choices.

Leverage

One benefit corporate finances have over individual finances is the use of leverage. Businesses can use leverage as an investment strategy and borrow money to invest in the company’s future.

When done right, leverage is a practice that can help support small businesses by accessing capital in order to expand.

Using leverage when it comes to individual finances is extremely risky and result in devastating losses such as losing your car or your home. 

Keeping Corporate and Individual Finances Separate

Businessman separates the wooden puzzle with a picture of money

Even though there are similarities between corporate and individual finances, it’s important to keep them separate.

It’s important to remember that a corporation is an independent entity that should be free-standing from your personal finances.

Here are some reasons why you should keep your corporate and individual finances separate:

  • Leverage: As we mentioned above, leverage can be highly beneficial for a company but potentially devastating for an individual.
  • Taxes: You can take advantage of tax deductions and write off business expenses when you keep your business finances separate from your personal finances.
  • Business Credit: Obtaining working capital for your business and business credit is key to securing larger business loans.
  • Professional Image: Keeping your company and personal finances separate makes you look like a serious business owner and not just someone who monetized a hobby.
  • Time and Money: When you keep your corporate finances separate, you can utilize the skills of a professional accountant to streamline your financial process, save you time, and save you money.

How to Keep Your Corporate Finances and Your Individual Finances Apart

When it comes to corporate and individual finances, the “how” is probably just as important as the “why”.

Here are some tips for keeping your finances apart:

  • Hire an Accountant: A Certified Personal Accountant (CPA) can ensure your company’s bookkeeping is done properly and that your finances remain separated.
  • Open Separate Accounts: Creating individual accounts for yourself and your business will help you distinguish between your finances.
  • Business Credit Card: A business credit will allow you to make company-related purchases without using your personal card. It will also help you build credit for your business.
  • Separate Your Receipts: Ensure that your business receipts and your personal receipts are organized and stored separately so you can easily access them without confusing the two.
  • Structure Your Business: Establish a legal structure for your business in order to disentangle your personal finances from your business finances.
  • Pay Yourself: Instead of randomly pulling money from your business to take care of your personal finances, pay yourself a salary to help your company stay on budget.

Let’s Grow Your Business!

Our expert team of accountants at Liu & Associates is proud to offer you the accounting services you need to grow your business and achieve success!

From taxes to bookkeeping, we have you covered! Check out our Corporate Accounting Services or contact us for more information.

Changing Corporate Accountants: How to Start

What do you do if you want to change your corporate accountant but feel stuck with your current one because they have been with you for so long?

While you may be fiercely loyal to your current accountant, you should focus on putting your company’s needs first!

Switching accountants is not an overly complicated process. In fact, most of the steps are taken by your new accounting firm and regulations ensure that file and information transfers are done efficiently.

In this article, we’re going to outline those steps and show you how easy it is!

But because we don’t recommend changing your corporate accountant on a whim, let’s start with some reasons why it could be time for a change:

Reasons to Change Accountants

It’s important that you don’t simply change your corporate accountant on a whim. Here are some main reasons why business owners may seek accounting help elsewhere:

They Aren’t Available

It can be frustrating if you can’t reach your accountant when necessary. In order to make informed business decisions, you need to be able to communicate with your accountant in a timely manner.

They’re Not Easy to Talk To

Even if you can get in touch with your accountant when needed, they may be difficult to communicate with.

Between accounting jargon you don’t understand to feeling like you are not understood, it may be time to change corporate accountants if you find your current ones are not approachable.

They Don’t Understand Your Business

Unless an accountant is industry-specific, they may lack the necessary knowledge to fully understand what you need.

While many accounts are not industry-specific and can perform amazingly, you may consider switching if your current firm doesn’t “get it” when it comes to your business needs.

They Are Not Proactive

The reason you’ve hired an accounting firm for your business needs is that you don’t have the time or know-how to do it yourself.

But if your accountants aren’t being proactive and offering better services or even reminders, it may be time to choose a firm that will offer you guidance throughout the year.

They Don’t Keep Up With Technology

When it comes to running a business, technology is key to being more productive and efficient. An accounting firm that embraces technology can better serve your business needs.

You’re Paying Too Much For Their Services

Especially if they are not meeting your expectations! When you pay for accounting services, you want to make sure you are receiving value and understanding.

It’s All About Timing

Now that you have a better understanding of why you should change corporate accountants, it’s important not to jump ship right away!

Switching accountants should happen during times where your business is experiencing little to no financial activity. This could be during a slow period or even after your year-end tax return has been filed.

The last thing you want is to have files transferred between the old and new accountants during times of high financial activity. Waiting until the right time will help to reduce the stress of switching between accountants.

You’ll also want to tie up any loose ends such as ensuring that any pending payments and transactions are complete. This way, you can avoid disputes over unpaid fees that can get in the way of a smooth transition to the new accountant.

Steps to Changing Corporate Accountants

Business people discussing the charts and graphs showing the results of their successful teamwork

1. Notify Your Current Accountant

It’s important that you notify your current accountant as soon as possible that you are switching to a new firm. They may be willing to correct the issues you have with their services and prevent the hassle of switching to a new accountant.

However, if you cannot be swayed, it’s important to notify your current firm and end the relationship on good terms. This will help facilitate an efficient transition.

Your new accountant can help you notify your current accountant by drafting a letter of notice.

2. Have Your Files Sent to the New Accountant

By law, your current accountant must turn over your company’s files to the new firm of your choosing. 

This begins with a letter of disengagement that requires your previous accountant to provide all relevant information to the new accountant.

Your new accountant will also send your previous accountant a professional clearance letter so that they can accept all necessary files and information during the transition.

3. Confirm That the Files Have Been Transferred

It’s important that you confirm with your new accounting firm that all files have been transferred by your previous accountant.

If not, you can file a complaint with your former firm’s regulatory board if an amicable file transfer is denied.

4. Approve Your New Accountant

The last step in this process is to assign authority to your new accountant. This allows them to perform tax duties on your behalf, such as filing returns.

This step also includes changing the passwords to your relevant accounts so that your former accountant no longer has access.

Questions to Ask a New Accountant

Of course, before you switch to a new accounting firm, you’ll want to make sure you are choosing an accountant that will meet your company’s needs.

Here are some questions you can ask to ensure that they are the right fit:

  • Who do you normally work with?
  • What services do you offer?
  • What do you specialize in?
  • How do you charge for your services? 
  • What is your response time?
  • What is your turnaround time?
  • What technology do you use?
  • How do you communicate with your clients? (Phone, email, Skype, etc.)
  • How often do you communicate with your clients?
  • Are you a Chartered Accountant or part of an association?

Plus, asking these questions beforehand holds them accountable for their answers!

Ready for a Change?

If you’re thinking about leaving your current accounting firm, this information will give you a better understanding of how it works so that you can make your decision with confidence!

At Liu & Associates, our goal is to provide companies with expert accounting services that offer the support you need as well as help you maximize your business’s finances.

If you’re ready for a change, get in touch with us today!

What Happens to Unused Tuition Tax Credits?

Tuition tax credits are non-refundable credits, meaning that they will work toward lowering the amount of taxes you owe but they will not be contributed to any refunds.

This means that they will help keep your owing taxes low but will not increase the amount you get back on your taxes.

Sometimes, however, it works out that the tuition you are claiming exceeds the amount you owe. So what happens to the rest of the tuition tax credit? Does it disappear into obscurity?

It doesn’t and the good news is that you can carry forward or transfer any unused credits!

Before we discuss how transferring and carrying forward works, let’s look at how you can go about claiming your tuition tax credits – and don’t forget to read to the end for some important considerations you should know about.

Claiming Tuition Tax Credits

Any student over the age of 16 who is enrolled in a post-secondary designated educational institution in Canada can claim tuition credits on their tax return. If you are studying abroad, you are eligible as long as you are studying full-time for at least three weeks.

However, if your employer pays or reimburses your tuition, you are not eligible to claim the tuition credit unless the tuition amount is included in your earnings. Or, if the employer pays tuition to your parent on your behalf.

In order to claim the tuition tax credit, you will need a T2202 (Tuition and Enrolment Certificate) issued by your school to certify that you qualify for the tax credit as well as provide you with the amount to claim on your taxes.

Unused Tuition Tax Credit Options

woman using calculator to do taxes beside piggy bank with graduating cap

In order to find out how much you have in unused tuition, log in to your CRA My Account. From there, click “Go to Tax Returns” in the Tax Returns section.

Scroll down on that page and look for the “Carryover Amounts” section and click “View Carryover Amounts”.

Keep scrolling until you find the “Federal Tuition Amounts” and the “Provincial Tuition Amounts”. This is where you’ll see if you have any unused amounts in the first column for last year’s row.

If that row is blank, you don’t have any unused amounts that you can carry forward or transfer. 

You can also find this information on your Notice of Assessment from last year or on your federal and provincial Schedule 11 from last year’s tax return.

Carrying Forward Tuition

If you have unused tuition tax credits for the current tax year (that you have not transferred), you can carry them forward to claim in future years – but you have to claim your carry forward in the first year that you pay income tax.

In order to calculate the amount you are carrying forward, you have to file a tax return and fill out federal Schedule 11.

As far as carrying forward your unused tuition tax credits, this is done automatically by the CRA. They will apply the available tuition amount to your taxes every year until it has been all used.

Transferring Tuition

Another option you have for unused tuition tax credits is to transfer the amount to qualifying relatives such as parents, grandparents, spouses, and common-law partners. 

In order to do so, you must designate the individual receiving the transfer, as well as the amount of the transfer, with form T2202 and Schedule 11

It’s important to note that your parents or grandparents are not qualified recipients if your spouse or partner claims an amount for you on lines 30300 or 32600 on their tax return.

If you do choose a parent or grandparent to receive your unused tuition tax credits, they will claim the transfer amount on line 32400 of their tax return. Transfers to your spouse or partner can be claimed on line 36000 of Schedule 2.

When it comes to transferring your tuition tax credits, you can only transfer up to $5,000 of the current year’s tuition. You can only transfer your provincial tuition from this year – carry-forward amounts from a past year cannot be transferred.

Why Would I Transfer My Unused Tuition Tax Credits?

While you can certainly carry over your unused tax credits to benefit future tax returns, there are some benefits to transferring the amount to a spouse or family member:

  • You get the money earlier.
  • If there is a change in tax law, tuition tax rates will likely go down meaning that they will be worth less on your tax return.
  • You have to use your tuition credits until you reduce your taxes to zero, regardless of any applicable tax credits (based on your income). For this reason, you would be simply wasting your tuition tax credits when other income-based benefits would reduce your amount owing anyway.

Important Considerations for Tuition Tax Credits

Before you carry forward or transfer your tuition tax credits, here are some important considerations to keep in mind:

  • For 2018 and later years, there is no tuition transfer available in New Brunswick, Ontario, or Saskatchewan because these provinces no longer have the tuition-education tax credits.
  • If you move to another province after carrying forward your tuition, you have to use the federal unused tuition amounts from your Notice of Assessment (or CRA account) when completing the provincial Schedule 11 for your new province of residence (unless you moved to Ontario, Québed or PEI).
  • Students must have taxable income in order to claim tuition tax credits. 
  • There is a Federal tax credit as well as a Provincial tax credit for tuition, so to claim or transfer these amounts you have to complete both the Federal Schedule 11 and the Provincial Schedule 11.

Get the Most Out of Your Tuition Tax Credits

Instead of attempting to navigate through the process of transferring or carrying forward your unused tuition tax credits, why not let the professionals do the work for you?

Our professional team at Liu & Associates has years of experience providing expert personal accounting services to clients in Edmonton and Calgary. 

Contact us today!

What is the Earliest I Can File My Taxes?

woman sitting at desk filing taxes

In Canada, every person must file income tax and benefit returns each year. The due date for having your taxes filed is April 30th – but if you’re self-employed you have until June 15th.

So that means if you are filing your 2021 taxes, they will be due April 30th, 2022, and June 15th, 2022, respectively.

However, just because you have until the end of April to file your taxes doesn’t mean you have to wait until the last minute!

The earliest date that the CRA (Canada Revenue Agency) will start accepting electronically filed tax returns is usually around February 22nd.

But keep in mind that some tax slips are not due until March so you may not have all of the information you need by the end of February. 

When Can I Expect My Tax Refund?

Getting your tax return can be quicker than you think. The CRA cannot guarantee a timeline but they do have stated goals for getting you your money as long as you file before or at the deadline.

Typically, if you file your tax return online, the CRA’s goal is to send your return within two weeks. If you file by paper return, the goal is eight weeks. 

However, if the CRA decides to take a closer look at your tax return and reported income, or initiates a tax audit, it can take longer. And, if you’re filing from outside of the country, there is a 16-week wait time.

How to File Your Tax Return

When it comes to filing your tax return, you have a few options:

  • NetFile. NetFile allows you to use a software package so you can fill out your own tax return and file it electronically. 
  • Autofill. If you use certified tax software, you can use Autofill to automatically fill in parts of our tax return based on information slips that have been filed with the CRA.
  • Print and Mail. You can also use software to print and mail your return if certain restrictions prevent you from using NetFile.
  • Professional Tax Preparation. An accounting firm can also prepare and file your taxes and ensure that your forms are filled out properly and that your receive your income quickly.

Although it is recommended that you use tax software to file your return (this ensures accuracy and a quick refund), you can also file manually. This involves acquiring a package of tax forms, filling them out, including all information slips, and mailing them to the CRA.

How to Receive Your Payment

You can receive your payment via direct deposit as long as you set up your account as such. This puts your refund straight into your bank account as soon as possible.

Plus, if you receive payments such as GST refunds or CCB (Canada Child Benefit), these payments go directly into your account as well.

If nothing shows up in your bank account after the two-week time frame, you can always check the status of your return through CRA’s My Account website. To do so, you will need your social insurance number, date of birth, and the amount of total income entered on line 150 of your tax return from the previous year.

What Do I Do if I Owe Money to the CRA?

young woman with shocked expression looking at piece of paper

Knowing tax deadlines is important not only in filing as early as possible but also to avoid interest and penalties on amounts owing. Even if you are not getting a refund, it’s helpful in knowing how much you owe as soon as possible.

Penalties and Interest

If for some reason you don’t think you can pay your taxes by the date they are due because of circumstances beyond your control, the CRA may waive penalties and interest. These types of circumstances include serious illness, accident, death of a family member, financial hardship, and natural/human-made disaster.

It may also be possible to set up a payment plan with the CRA where you pay the owing balance in installments. However, if you miss the set installment payment due date, you may need to pay installment interest.

Otherwise, if you file late and don’t pay the amount owing in time, you could face a late-filing penalty of 5% of the balance owing plus 1% of the balance owing each month your payment is late.

How to Make a Payment

When you owe money on your taxes, you have to make your payments to the CRA. This can be done using a number of methods:

  • Online Banking: You can make a payment directly through your financial institution although the specific steps involved can vary from bank to bank. 
  • Financial Institution: If you don’t use online banking and want to make the payment in person, you can do so at your bank. However, you will need a remittance form and must contact the CRA directly to receive one (they cannot be printed from the CRA website).
  • CRA’s My Payment: The CRA website has an online payment service called My Payment. There is no fee to use this service and you don’t need to be registered for any of the CRA’s other online services. You do, however, need a debit card (Visa, Mastercard, etc.) to set up the payment.
  • Credit Card: You can make payments with a credit card but these have to be done through a third-party provider (PaySimply and Plastiq) and cannot be made directly to the CRA. There is a fee to use this service.
  • Pre-Authorized Debit: You can authorize the CRA to debit your account for the amount of taxes owed on dates you specified – this method of payment is best suited if you are paying your owing balance in installments.
  • Cash/Debit: It is possible to pay for your taxes in cash or by using a debit card by visiting a Canada Post outlet. You will need a self-generated QR (quick response) code found on the CRA website.

Keep in mind that some forms of payment take time to process and may arrive at the CRA after the due date. This is why it’s a good idea to file your taxes early so you can make a payment on the owing balance as soon as possible.

Filing Your Taxes Early

As long as you have received all of the necessary paperwork to file your taxes correctly, there’s no need to wait until the deadline!

Filing early means that you will receive your refund quickly or have more time to sort out paying back taxes you owe.

Want to speed up the process? Our accountants at Liu & Associates can file your taxes to ensure accuracy and a fast return.

Contact us today for more information!

 

Common Tax Terms Explained

Do you ever find that when tax lingo starts flying around at tax time, most of it goes right over your head? 

Filing and paying taxes involves more than reporting your income to the government. There are a lot of nuances to consider when it comes to preparing your taxes properly as well as ensuring you are taking advantage of eligible credits and deductions.

In order to manage your finances in a more tax-friendly way, it’s helpful to know what many of these terms mean. Here is a list, from A to Z, of some common tax terms explained:

After-Tax Income

This is the income leftover after you subtract all of your federal and provincial taxes and employment deductions such as CPP (Canadian Pension Plan) and EI (Employment Insurance).

Audit

A tax audit occurs when the CRA (Canada Revenue Agency) examines your tax return to verify that your income and deductions are accurate. 

Canada Child Benefit (CCB)

The Canada Child Benefit (CCB) is a tax-free monthly payment received by eligible families with children under the age of 18. It helps to offset the costs of raising children and may also include the child disability credit if applicable.

Canada Pension Plan/Québec Pension Plan Benefits (CPP/QPP)

The Canada Pension Plan (CPP) or Québed Pension Plan (QPP) replaces part of your income after you retire. This is a taxable benefit and the amount you receive depends on your average earnings while you worked.

Dependent

A dependent is an individual who relies on your income. You can claim the dependent tax credit for spouses (if their net income is less than $13,808), children under the age of 18 (unless they are older and have a mental or physical infirmity), and parents/grandparents (if they are dependent on you and live in your home).

Employment Insurance Benefits (EI)

Employment Insurance Benefits (EI) is available to individuals who have lost their job through no fault of their own. It is also used to cover maternity/parental leave, sick leave and, recently, CERB payments. These benefits are taxable in the year in which thhey are received.

GST/HST Credit

The GST/HST credit is paid out to individuals depending on how much money they earn. Those with lower incomes may receive this payment quarterly (four times per year) to offset the GST/HST they pay. This credit is tax-free.

Information Slips

Information slips are forms used by employers, trusts, and businesses to inform taxpayers and the CRA (Canada Revenue Agency) of how much income was earned and how much tax was deducted.

Investment Income

The CRA takes into consideration interest earned on investments along with annual earnings. This includes foreign interest, dividend income, foreign income, and foreign non-business income.

Land Transfer Tax (LTT)

Land Transfer Tax (LTT) is a one-time tax you pay when you purchase a home in all provinces and territories except for Alberta and Saskatchewan. In these provinces, there is only a small transfer fee. The tax amount varies by province but is usually calculated based on a percentage of the property value.

NetFile

NetFile is an electronic tax-filing service that allows you to do your personal taxes using NetFile-certified tax software and send your return directly to the CRA (Canada Revenue Agency). 

woman sitting at desk looking at paper and using calculator

Non-Refundable Tax Credits

Non-refundable tax credits are used to reduce the amount of federal tax you pay. However, these credits do not contribute to your tax refund if you are eligible for you. In Canada, you can claim the non-refundable tax credit for their personal amount.

Non-Taxable Earnings

There are some incomes, such as the GST/HST credit or CCB (Canada Child Benefit) that are not considered taxable. These are known as non-taxable earnings.

Refundable Tax Credits

Refundable tax credits reduce the total amount of tax you pay and can contribute to your tax refund. Examples of this would be the GST/HST credit and the Working Income Tax credit.

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is a savings plan for retirement in which the amount you contribute is deducted from your taxable income. However, any amounts you withdraw from your RRSP are added to your taxable income.

Self-Employment Income

When you earn an income from a business that you operate or from freelancing contracts, whether you are a sole proprietor or work with a partner, this is considered self-employment income.

Tax Brackets

There are four income tax brackets you may fall into depending on your income. This determines your rate of tax. Up until a certain amount is taxed at 15% and anything beyond that amount is taxed at a higher rate.

Tax Credits and Deductions

Any amount that reduces the amount of tax you have to pay is considered to be a tax credit. They can be refundable or non-refundable.

A deduction, on the other hand, can lower your taxable income as well as the tax rate used to calculate your tax. 

Tax-Free Savings Account (TFSA)

A tax-free savings account (TFSA) is an account that allows Canadians over the age of 18 to save money and earn tax-free interest. You are also not charged taxes on the amounts you withdrawal. However, you can’t use contributions to a TFSA to lower your taxable income.

Taxable Income

Your taxable income is your total income and determines how much income tax you need to pay. This includes wages, capital gains, and other earnings for the tax year, minus deductions and losses. 

Tuition Deductions and Education Credits

The Tuition Tax Credit allows students 17 years and older enrolled in a higher education institution to use their school tuition fees to reduce their taxable income. They can also transfer up to $5000 worth of credits to a spouse/common-law partner or parent/grandparent.

The Student Loan Interest deduction applies to government student loans and allows you to deduct the interest on those loans from your taxes. 

Have More Questions?

If ever you come across a tax term you don’t understand, or struggle to comprehend your finances and tax returns, don’t hesitate to contact our expert accountants at Liu & Associates!

We are ready and dedicated to helping you file your personal, corporate, and estate taxes as well as help you understand the entire process.

Let’s chat! 

What Are Tuition Tax Credits, And How You Can Claim Them?

Two students sit on grass outside of a red brick university building

In 2017, the Canadian government eliminated the federal educational and textbook tax credits. However, they did not eliminate the tuition tax credit, allowing students the opportunity to apply tuition costs toward owing taxes. While it may not seem like a huge tax break, it can relieve a significant financial burden on students who balance post-secondary studies with working and making an income.

If you are a student attending, or planning to attend, a post-secondary educational institution, you are going to want to make sure you take full advantage of this tax credit.

What is the Tuition Tax Credit?

The tuition tax credit is an education tax break offered to Canadians by the Canada Revenue Agency (CRA). It allows students 17 years of age and older who are enrolled in post-secondary education to use their tuition to reduce their taxable income.

The tuition amount, up to $5,000, can also be transferred to a spouse, common law partner, parent or grandparent.

In order to be eligible for the tuition tax credit, students must attend a post-secondary level course at an accredited institution in Canada – although individuals may qualify at school abroad as well.

Student Loan Interest Deduction

In addition to the tuition tax credit, students may also be able to deduct interest from government issued student loans from their taxes. This only applies to government loans – interest from personal loans or lines of credit are not eligible.

Other School-related Deductions

Although Canada has done away with claiming textbooks and other school-related costs as tax deductions, students can take advantage of tax breaks related to moving costs.

The moving expenses deduction applies to individuals who move more than 40 kms away from home to attend an accredited educational institute on a full-time basis. This deduction may cover the costs of moving, airfare and the connection and transfer of utilities.

However, there are restrictions. A student can only apply relocation costs against the tax they are required to pay on scholarships, bursaries, fellowships, prizes and research grants.

How to Claim Tuition Tax Credits

The tuition tax credit is a non-refundable credit, meaning that if the tuition amount is greater than the tax owed, you won’t get a refund from the claimed amount. It works by decreasing or eliminating any amounts owed to the government. Unused tuition amounts can be carried forward to the next year or transferred to a spouse, common law partner, parent or grandparent.

For example, if you claim $4,500 worth of tuition but your owing tax bill is only $1,000, you can transfer the remaining $3,500 to an eligible family member or carry it forward to a future tax year. You will not receive that $3,500 as a refund, as this is a non-refundable tax credit.

Calculating the Tax Tuition Credit

The tuition tax credit is calculated by combining all eligible tuition fees then multiplying the total by the lowest federal tax rate percentage for the current tax. The federal tax rate percentage depends on your income bracket, which depends on which province you live in and how much income you declare.

Claiming the Tax Tuition Credit

Post-secondary institutions issue form T2202A (Tuition and Enrolment Certificate) to students, certifying that you have taken the eligible courses of necessary duration in order to qualify for the tax credit.

The form indicates in Box A the total eligible tuition fees paid as well as the months you were enrolled in school either part-time (Box B) or full-time (Box C).

Take Full Advantage of Tax Relief

If you are eligible for tax breaks because you are a student, be sure to take full advantage of these opportunities. Our accountants at Liu & Associates can answer any questions you have related to your tuition costs and tax claims. Contact us today for more information

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