How Much Should I Donate to Charity This Year?

woman donating to charity on her laptop

Did you know that Albertans gave around $1.47 billion to charities in 2013?

Out of all the provinces, Alberta taxpayers had the highest median charitable donation amount in the country!

Although there are many reasons you should make a charitable donation, getting relief on your annual personal taxes is one you shouldn’t ignore.

Charitable tax credits can help you reduce your owing tax amount, and we can help you figure it out!

Liu & Associates is here to help you understand how charitable giving affects taxes and how much you should donate to charity this year:

How Does Charitable Giving Affect Taxes?

Charitable donations are non-refundable tax credits and can only reduce the tax you owe – they will not generate a refund for you.

When you make a donation to a charity that is registered with the CRA, a certain percentage of that donation comes back to you as a tax refund (but not a tax credit).

If you don’t owe any taxes, you don’t get a refund, no matter how many donations you have made.

However, your overall tax savings will equal the amount of charitable tax credits that are calculated.

The Charitable Donation Tax Credit is available to individuals who make a donation to a registered charity in the form of money or anything else of value, such as stocks, ecological and cultural gifts, and property.

If you receive something in return for your donation (such as a ticket to a special event), the value of what you received has to be deducted from the amount you donated.

What Donations Are Tax Deductible in Canada?

In order to claim your donations on your taxes, the organization you donate to must be a registered charity.

You can use the Canada Revenue Agency (CRA) website to check and see if a charity is registered.

Eligible donations include money that is donated to a charitable organization, publicly listed securities donated to charitable organizations, and the excess value of non-cash property (over $500).

How Much of a Charitable Donation Is Tax Deductible?

To calculate the total amount of donations you want to claim, look at donations made by December 31 of the applicable year, any unclaimed donations from the past five years, and any unclaimed donations made by your common-law partner or spouse in the past five years.

The Charitable Tax Credit is 15% of the first $200 you donate and 29% on any amount above that threshold.

Under certain rules, you can even claim 33% if you are in a higher tax bracket!

On top of the federal tax rules for charitable donations, each province offers its own tax credits for donations.

In Alberta, the province offers an additional 10% tax credit on the first $200.

Overall, you can claim eligible donations to a limit of 75% of your net income.

How Do I Claim Charitable Donations on My Taxes?

man filling tax form with help laptop caluclator and note at office desk

In order to claim the Charitable Donation Tax Credit, you need to fill out Schedule 9 of your tax return.

To do this properly, you need to keep all of your official donation receipts and any other supporting documents, such as pledge forms, cheques, and bank statements.

Whenever you make a donation, the charitable institute you donated to will send you a tax receipt for the upcoming tax season.

Keeping all of these documents is important since the CRA may request proof of the donations.

Charitable donations are a priority when it comes to CRA post-assessments, and they can often trigger an audit.

To ensure you don’t trigger an audit by claiming your charitable donations, be sure your official donation receipts include the following:

  • A statement that identifies the receipt as official and for tax purposes.
  • The name and address of the charity (that matches their file with the CRA).
  • The charity’s registration number and the serial number of the receipt.
  • The place the receipt was issued.
  • The day or year the donation was received, as well as the day the receipt was issued.
  • Your full name and amount of the donation.
  • A description and value of anything you receive in exchange for the donation.
  • A signature of the individual authorized by the charity to acknowledge donations.

Ultimately, the details on the receipt must match what the CRA has on file.

You should keep these receipts and any other donation records for at least 6 years in case they are requested by the CRA.

How Much Should I Donate Based on My Income?

How much you donate based on your income is a personal decision and depends on your unique situation and circumstances.

However, since there is always a great need for donations in Canada, it’s important to give what you can.

Here are some things you should consider when it comes to deciding how much you should donate:

A Giving Plan

Create a strategy that includes who you want to give to and how much. Think about the causes you are passionate about and find organizations that fit the CRA’s criteria.

Decide How Much to Give

As a general rule, you can start with 1% of your income. This allows you to give what you can, even if there are changes to your income.

If 1% is a comfortable amount for you, you can increase it every year to maximize your charitable giving.

Automatic Giving

When it comes to including charitable donations in your financial planning, it’s easier to give more when you give small amounts at a time.

Once you’re used to donating on a regular basis, incorporating your donations into your budget becomes a seamless process!

Review Your Plan

Every 6 to 12 months, you should take a look at your giving plan and figure out if you are spending too much on donations or if you can give more.

Or perhaps you want to diversify your donations and give to different charities.

Should I Donate Once Annually or Monthly?

Ultimately, it makes no difference on your personal tax return whether you donate once a year or every month.

However, as we mentioned above, donating on a monthly basis is a more congruent way to incorporate charitable giving into your financial planning or budget.

But donating annually can be beneficial if you receive a significant sum of money once per year, such as a tax return.

Whether or not you should donate once annually or monthly is a choice you need to make based on your unique circumstances.

While everyone is encouraged to give, you need to make sure you are doing what is best for your financial health!

No One Has Ever Become Poor By Giving!

The above words were spoken by the young Anne Frank, and we couldn’t agree more.

At Liu & Associates, we appreciate your efforts to make positive changes in the world!

Charitable donations are an amazing way to give back to your community and make a wonderful impact on individual lives.

If making and claiming donations seems like a complicated process, our team of expert accountants is here to help!

We can help you step-by-step when it comes to claiming charitable donations on your taxes to ensure you benefit from your generosity and the taxes are done right.

Book an appointment or contact us today for more information!

What To Know About Being A Landlord in Alberta

couple of tenants shaking hands with landlord, receive house key, making rent deal

Becoming a landlord in Alberta requires a significant amount of responsibility – and a lot of money.

If you’re wondering if it’s worth it to become a landlord, Liu & Associates is here to tell you what it takes.

From how to be a good landlord to how rental income affects your taxes, this guide will help you determine if becoming a landlord is the right choice for you!

Is Being A Landlord Worth It Financially?

Becoming a landlord begins with investing in real estate, which involves factors such as a down payment and mortgage, as well as repairs and maintenance.

You will also have to consider the cost of insuring the property, and it will cost more if you don’t live in the building.

And as we mentioned, there are also repairs and maintenance, which can be a large expense if you purchase a larger building with many units.

As a landlord, you can’t ignore minor issues to avoid spending money. If a tenant needs something fixed, you have to fix it.

Plus, in between tenants, you may have to invest in fixing up a unit before you rent it again.

Now that we’ve talked about the ways in which being a landlord will cost you money let’s consider if becoming one is financially worth it!

As a landlord, you can earn a passive income in rental real estate, meaning that you don’t have to earn money simply by working for it.

Yes, you are responsible for maintenance and upkeep, but collecting rent requires no effort!

It’s also important to note that becoming a landlord offers you certain tax breaks you can use to offset the cost of repairs and renovations.

If you’re smart with your rental money, you can easily earn a guaranteed monthly income by becoming a landlord in Alberta.

How to Be A Good Landlord

Being a good landlord doesn’t mean becoming best friends with all of your tenants.

It requires that you balance care with business sense in order to ensure tenants are satisfied and continue to rent from you.

Here are some key traits of successful landlords:

Organization

Being a landlord means keeping track of many moving parts, from leasing to new tenants to dealing with maintenance requests and more.

This involves paperwork, such as forms, rental receipts, and repair receipts.

Having a structured system is key to staying organized as a landlord, so make sure you know where all your important documents are kept and develop a way to keep track of everything.

Communication and Understanding

While you can definitely consider being a landlord a business, you have to remember that you are renting to real human beings who call their units home.

In order to create positive relationships with your tenants, you have to communicate with them clearly.

This means responding to their questions and concerns as soon as you possibly can, as well as notifying them in advance if you are planning any maintenance or making changes to the rental policies.

You also have to be flexible when it comes to rules and policies – to a certain point.

Avoid being a pushover, but give your tenants reasonable leeway if giving in will solve more problems than it will cause.

For example, if your tenant contacts you because they have to pay the rent a couple of days late, a late rental payment is far better than the process of evicting a tenant, repairing the unit, and re-renting it.

Consistency

Whether you choose to be a flexible landlord or you prefer to stick to the rules, consistency with tenants is essential.

They should know what to expect from you as soon as they sign the lease and move in. 

Holding different tenants to different standards can lead to resentment and tension, causing a high turnover rate.

Clearly state your policies in the rental agreement, and make sure this agreement is the same for all tenants. If you make any changes to the policies, apply the changes to each tenant.

How Rental Income Affects Taxes

close up of woman calculating rental income taxes on laptop and calculator

If you are thinking about becoming a landlord, it’s crucial that you understand how rental income in Alberta works.

All net rental income collected in Alberta must be reported as income on your tax return.

This does not include any deductions for expenses such as insurance premiums, property taxes, and utilities.

Deductions

And, yes, you can make certain deductions on your taxes by being a landlord!

Here are some deductions you can make:

  • Property taxes
  • Insurance premiums
  • Utilities
  • Capital Cost Allowance (CCA)
  • Rental loss
  • Capital expenses
  • Current expenses

Some of these tax terms can be confusing, but to put it simply, you can capital expenses cannot be claimed as deductibles because they have a lasting benefit to your property.

However, they can be added to the tax cost of your property and claimed as a CCA over several years.

Current expenses often require regular maintenance so that they can be claimed as a deductible.

For example, if you add a deck to your rental property, the cost of the deck is considered to be a capital expense.

However, sanding and refinishing the deck is a current expense and can be claimed.

Filing Taxes

As a landlord, you can claim your rental income as a sole proprietor and not a business or partnership. If you do, you can claim the income on your personal taxes by filling out Form T776.

You can claim your expenses on this form as well.

Just make sure you keep all of your receipts from rent and expenses to ensure you file everything properly and avoid triggering an audit.

Becoming a Landlord in Alberta – Is It Worth It?

Here at Liu & Associates, we believe that with the right financial organization strategies, you can easily enjoy the benefits of becoming a landlord in Alberta!

But the only way to guarantee success as a landlord is to speak to a licensed tax professional.

Our team has the knowledge and expertise to help you maximize your earnings and tax return as a landlord.

Get in touch with us for more information!

What To Know About Rental Income in Alberta

In Canada, rental income is the income you earn from a rental property that you own and rent to someone else.

Typically, rental income comes from renting apartments, houses, and rooms but also includes office space and other commercial properties.

In this article, we are going to discuss everything you need to know about rental income in Alberta as an individual (not a business or trust).

While earning an income rental seems like a quick and easy way to make more money, there are many factors that you have to take into consideration, such as how to determine your rental rate and how to claim your rental income on your taxes.

We’ll also look at the benefits and risks of earning a rental income, as well as tips on how to save money on your rental income.

Determining Your Rental Rate

It can be difficult to determine what you should charge for rent. You want to ensure the cost is not too high so your rental property remains attractive.

However, you don’t want to price your rent too low and miss out on the additional income.

Check the Current Property Value

In order to calculate your rental rate, begin with the current property value (not the same price it was initially purchased at). This will give you an idea of how much the property is worth in comparison to other rental properties in the area.

Do Your Research

You should also look at comparable rentals in the area for similar properties by browsing rental listings that are the same size with the same number of bedrooms. You should also take the condition of the other properties into consideration.

Use This Formula

Now, take the current property value and multiply it by 1%.

For example, if the value of the property is $200,000, then 1% is $2000. This is a baseline rental rate you can then compare to the similar properties you researched.

Other Factors

There are other factors you should consider when determining your rental rate, such as:

  • Maintenance costs
  • The demand for rental property
  • Demographics
  • Price-to-rent ratio (affordability when it comes to renting versus buying in the area)

Taxes on Rental Income in Alberta

When you collect rental income in Alberta, you must report that income on your tax return. Rental income is taxed at a marginal rate similar to interest income and can range from 25% to 48%.

Keep in mind that only your net rental income is taxable. This does not include deductions made for expenses such as property taxes, insurance premiums, and utilities.

What Can I Deduct From My Taxes?

You can also claim capital cost allowance (CCA) against your rental property and other assets used for earning rental income, like tenant improvements and new appliances.

CCA claims are depreciable, meaning that you must deduct the cost of your capital investment over a number of years.

If your rental expenses exceed your rental income, this is considered a rental loss and is usually deductible against your other sources of income.

However, there are some limits on claiming a rental loss, and CCA deductions cannot be used to create or increase a rental loss.

Not all expenses are deductible when it comes to your rental income, even if they relate to your rental property. These are known as “capital expenses” and refer to expenses that have a lasting benefit to your property.

For example, you cannot claim the cost of replacing your roof or adding a deck to your rental building.

However, even though these improvements can be claimed as deductibles, they can be added to the tax cost of your property, which allows you to claim the expense as a CCA over the course of several years.

Expenses that are considered deductible are known as “current expenses” and include expenses used to maintain, repair, or otherwise restore your property.

For example, building a fence is considered a capital expense and cannot be claimed – but sanding and repainting an old fence is a current expense, and the cost can be claimed.

Current expenses should be claimed in the year they were incurred instead of spread over time.

How Do I Know If It’s a Current or Capital Expense?

Figuring out whether your expenses are current or capital can be confusing. Is it a maintenance job or long-lasting improvements? Is re-wiring a home a current or capital expenditure?

This is why it is recommended that you speak with a qualified tax advisor before you carry out repairs, maintenance, or renovations to ensure that you make the proper claims on your taxes.

How do I file my taxes when I claim rental income?

If you are claiming rental income as a sole proprietor and not a business or partnership, you can include this income in your personal taxes by filling out Form T776.

You can also claim expenses on this form as well.

Be sure to keep all receipts from rent and expenses when preparing your personal tax return.

Benefits of Gaining Rental Income

friendly landlord shakes hands with new tenants

There are a number of advantages to buying a property and renting it to tenants. Here are some of the key benefits:

Fewer Taxes

As we discussed above, you can claim certain expenses from your rental income, thus reducing the taxes you owe.

You can claim expenses such as mortgage interest, property taxes, insurance, maintenance, upgrades, property management fees, and utilities (if they are included in the rent).

Passive Income

Owning a rental property pays out on a monthly basis. This recurring income requires relatively little effort to earn and is a great way to make money on the side or create additional financial security.

The rental income you collect will offset the mortgage cost of your building, putting more money in your pocket!

Of course, you do have to factor in cash flow and prepare for inevitabilities such as cleaning up when a tenant moves out and repairs.

Property Appreciation

In today’s housing market, it seems tempting to sell your house and cash in on the rocketing house prices. However, once you sell your home, you can no longer benefit from any future appreciation.

Instead, you could rent out your home to secure your property and wait for the right time to sell.

Plus, having tenants ensures that issues with your home are noticed immediately and can be fixed in a timely manner.

Risks of Gaining Rental Income

Of course, there are some disadvantages and risks to gaining rental income that needs to be taken into consideration:

Tenants

When you own rental property and rent to tenants, you become a landlord. Despite your due diligence when choosing renters, you could end up with a difficult tenant.

For example, you could end up with a tenant that pays their rent late, demands unnecessary repairs, leaves the water running, keeps the heat on while away, etc.

You could also end up with an unsavory tenant that destroys your property.

While the majority of tenants in Alberta are respectful, you could end up with one that costs you money and decreases the income you make from their rent.

Repairs and Maintenance

When you own a rental property, minor and major repairs will arise. You may be able to save money by doing the work yourself, but larger issues may require a professional contractor.

As a landlord, you should expect to face regular maintenance and repair issues. From broken toilets to rotting stairs, it is your responsibility to ensure that the property is safe and livable.

If the building you invested in requires a lot of work, you can expect to pocket less of the rental income.

Your Assets Become Concentrated

If you’re looking to purchase a rental property as an investment opportunity, it’s important to consider that doing so will concentrate your assets.

Rental properties are non-liquid and non-diversified assets and can be exposed to risks from significant declines in tenant demand and local property values.

Tips for Saving on Rental Income

When you own a rental property, you are running a business that can be affected by the rise and fall of revenue and expenses.

Here are some tips for saving rental income so you can put more money in your pocket while creating a safe and comfortable environment for your tenants.

Keep Up With Regular Maintenance

Regular maintenance is a preventative measure that will protect your investment and keep your tenants happy (happy tenants reduce tenant turnover and increased costs).

Plus, regular maintenance will help you avoid more costly issues in the future.

Reduce Tenant Turnover

Speaking of tenant turnover, having tenants continuously coming and going is going to cost you more out of pocket for cleaning and updating – and you may lose out on rent as you advertise and vet a new tenant.

The key to reducing tenant turnover is keeping your tenants happy. Create an open environment of communication so you can learn about issues and solve them in a timely manner.

Fixing issues is far cheaper than the cost of turnover.

Reduce Property Expenses

Even though rental income is considered a passive income, there are many property expenses that come with being a landlord.

From heating bills to electricity bills, snow removal, and garbage removal, there are many financial responsibilities. However, you can always find ways to reduce these expenses.

For instance, you can improve the energy efficiency of your property by using less expensive alternatives such as LED lights and modernizing the heating system.

Maximize Your Tax Deductions

Ensure that you are maximizing your tax deductions and offsetting your expenses against your tax bill!

This is perhaps the best way you can save on rental income – and all it takes is one call to a professional tax accountant.

Rental Income Frequently Asked Questions

Do you have more questions? We have more answers! Check out these frequently asked questions:

Do rental income tax laws vary from province to province?

As long as you are renting out your property as an individual (and not a trust or partnership), the tax rules apply across all provinces of Canada.

Can claiming rental income trigger an audit?

Typically, rental income is not a common audit trigger but constantly claiming losses from a rental property will catch the attention of the CRA.

If you find yourself facing recurring losses from your rental property, be sure to keep careful records to show the CRA that you are doing everything you can to turn a profit.

Do I have to claim rental income from family members?

Yes, if your family member is paying you rent, this income must be reported on your tax return.

However, if you rent property to a family member below fair market value, you may be able to claim an acceptable loss and avoid paying taxes on this income.

As a landlord, can I increase the rent at any time?

In Canada, you cannot increase the rent during any fixed-term rental agreement. If your tenant is not on a fixed-term agreement, you cannot raise the rent during their first year of tenancy.

Can I increase my rental income to any amount?

The ability to raise rent depends on the province you are in. In many provinces, the amount of the increase is controlled by the government.

However, in Alberta, there are currently no controls on rent increases, but it can only be increased if there has been no rent increase in the previous 12 months (or since the start of the tenancy).

Rental Income in Alberta – We Can Help!

Although this guide is a great introduction to rental income in Alberta, the only way to guarantee that you fully benefit from earning a rental income is to speak to a licensed tax professional.

Our team at Liu & Associates has the knowledge and expertise when it comes to Albertan and Canadian tax landscape.

We can help you sort out your rental income and expenses so you can maximize your tax return.

Let’s chat today!

Avoiding a CRA Audit When Self-Employed

woman sitting at home office desk with cup of coffee

Tax audits can be a stressful ordeal.

The CRA conducts audits based on risk assessments and considers self-employed individuals to be risky when it comes to filing taxes.

Rest assured that many self-employed individuals who experience audits have done nothing wrong – they simply caught the attention of the CRA, who wants to ensure that tax legislation and compliance are maintained.

However, there are ways that your small business can properly file its taxes and avoid a CRA audit!

Reasons Self-Employed Individuals Get Audited

As someone who is self-employed, there are things that can trigger an audit with the CRA.

Before we look at how to avoid an audit, let’s look at these common audit triggers:

You’re Self-Employed

Sometimes being self-employed is enough to trigger an audit!

When you don’t receive a T4 slip from an employer, the CRA cannot check your income against an official document to look for mistakes and accuracy.

Because you are reporting your income, the CRA may assume that the records are not accurate and will audit your income to check for errors.

Your Tax Return Has Changed Significantly

If you claim way more or way less than you did in previous years, the CRA may flag your account and conduct an audit.

There are many reasons a self-employed income can vary (COVID, supply chain issues, more time to dedicate to your business, etc.), but if you know you are filing a significantly different amount, then be prepared for an audit.

Your Claims Seem Excessive

Being self-employed means you can claim various expenses on your tax return, such as your home office or vehicle.

However, if the CRA thinks you are claiming more than you are eligible for, they will conduct an audit to review your expenditures.

For example, it’s unlikely that you would use your vehicle solely for business, so claiming the entire cost of your car is going to raise eyebrows at the CRA.

You Continually Claim Business Losses

If you are continually claiming business losses each year and reducing income from other sources, the CRA will conduct an audit to verify whether or not your business is actually a commercial enterprise.

How to Keep Proper Tax Records

Close-up Of A Businessperson's Hand Calculating Invoice At Workplace

The first step in avoiding a CRA audit when self-employed is to keep proper tax records!

This includes organizing your records, invoices, receipts, and other financial documents for at least six years.

You can use record-keeping software such as QuickBooks to help manage your tax records, but here are some other self-employed tax tips for organizing your documents:

  • Keep your business and personal accounts separate to keep things simple and efficient.
  • Use spreadsheets to log claims such as mileage on your vehicle and purchases for your business.
  • Use a file folder to organize your receipts. If the receipt doesn’t fully describe your purchases, make a note.
  • Make backups of any digital information. If using paper copies, make digital backups.
  • Dedicate time each week to work on your bookkeeping. Don’t leave your tax preparation to the last minute!

By improving your financial record-keeping, you can avoid a CRA audit, and if you do get audited, you will have all the necessary information organized and ready to go!

Incorporated Business vs. Non-Incorporated

Even as a self-employed individual, you can incorporate your business in order to separate your business from your personal finances.

Otherwise, when you run a non-incorporated business, you are personally responsible for the results of the business – good and bad.

However, when you incorporate your business, you are responsible for preparing quarterly and annual reports for the CRA.

This can involve extensive paperwork, so keeping good records as an incorporated business is essential.

Non-incorporated businesses don’t require such a heavy load when it comes to preparing taxes, and your business and personal taxes can be filed in one individual tax return.

Get to Know your Tax Deductions

Earlier, we mentioned how excessive deductions can trigger an audit. To avoid a CRA audit when self-employed, let’s look at the type of tax deductions you are eligible for:

Business Operating Expenses

  • Start-up costs
  • Delivery and shipping costs
  • Accounting fees
  • Advertising costs
  • Tax preparation services

Home Office Expenses

  • Home office cost (the percentage of your home your office space occupies compared to your rent/mortgage, utility costs, etc.)
  • Telephone and internet (the percentage of hours used for business versus personal)
  • Cleaning supplies
  • Office supplies

Vehicle Expenses

  • Gas
  • Insurance
  • Repair Costs
  • Parking Fees

(Keep in mind that if you use your vehicle for both business and personal use, you will have to calculate the deduction costs based on how often you use your car for business and how many kilometers you use for business.)

Other Deductions

Don’t miss out on these additional tax deductions for self-employed individuals!

  • Bank fees on your business bank account
  • Private health plans

Keep a Backup Fund (Just in Case)

As a self-employed worker, you do not get to enjoy having a regular income like waged and salaried workers.

For this reason, it’s important to keep a backup fund just in case!

Start by establishing an emergency fund by looking at your budget and seeing how much you can afford to put aside.

Not only will an emergency fund help you in a pinch, but it may come in handy for paying your taxes.

You should keep any balances on your credit cards below their limits and consider applying for a personal line of credit. These can be great buffers should you run into any financial hardships.

When it comes to being self-employed, financial hardships can occur for many reasons, such as:

  • Irregular income
  • Tech breakdowns
  • Late payments from clients
  • Burnout (you don’t get paid vacation, sick leave, or mental health days when you’re self-employed!)

Ultimately, having a backup means you can address any sudden financial issues in your business and avoid a CRA audit.

Accounting Services in Edmonton For Self-Employed Individuals

Avoiding a CRA audit when self-employed is considerably easier when you have a professional and knowledgeable accountant by your side!

Get in touch with Liu & Associates today to learn more about how our team can support your small business and help you organize your taxes to avoid a stressful audit.

Let’s talk!

Common Audit Triggers in Canada

Businesswoman Analyzing Taxes With Magnifying Glass

Here at Liu & Associates, we know that audits are no fun. Whether you are an individual or run a business, this can be a stressful situation.

The CRA does not select audit candidates at random. Instead, they use a system of risk assessment that flags returns considered to be “high risk.” 

Fortunately, there are certain audit triggers you can avoid in order to circumvent a tax audit. Here are the most common ones in Canada:

Unusual Deductions or Changes

When you file your taxes with the CRA, they will look for consistencies in your return compared to other years.

If they notice a dramatic change in your income, credits, or deductions, your return could be flagged for an audit.

When it comes to avoiding a tax audit involving significant changes, be sure to document all activity so you can justify these changes to the CRA.

Excessive Claims

While being able to write off expenses on your taxes can be a relief, you have to be careful about ensuring that you are making claims you are actually eligible for.

For example, if you have a home office, you can’t claim that your office takes up half of your six-bedroom home. This is unrealistic and may trigger a CRA audit.

Likewise, unless you own a snowplow or other vehicle used strictly for business, you can’t write off 100% of your family car. The CRA will take notice of this claim and question why you are writing off an entire vehicle used for personal reasons.

When it comes to claiming deductions on your personal tax return, speak to a professional accountant to find out what you are eligible for. As long as you only claim what you are entitled to, you’ll have nothing to worry about if you are audited.

Unreported Income

When you’re employer issues you a T4 slip stating your earnings, they also send one to the CRA. Therefore, the CRA will know if you don’t report your total income.

This can get tricky if you receive transactions that involve cash. Be sure to keep a record of all cash transactions and claim this income when you file your taxes.

Being Self-Employed

Freelancer businesswoman has tablet and cellphone in hands and laptop on table with charts on screen.

When you work for yourself and do not receive a T4 statement of income, the CRA may consider you a high-risk taxpayer because your income is not officially documented and automatically taxed.

The CRA looks at it this way: If you do not have taxes taken from your income, there is an increased chance that your taxes could be incorrectly reported.

As long as you keep detailed records of your income as a self-employed individual, you simply have to provide these documents to the CRA if you face an audit.

Repeat Losses

If your business shows repeat losses, especially those that occur to offset other gains or earnings, you can expect an audit by the CRA.

Avoiding an audit, in this case, involves your ability to demonstrate that you had a “reasonable expectation of profit.” Otherwise, you could be denied all of your expenses.

Prior Tax Audits

Unfortunately, if you have faced a tax audit in the past, the CRA will likely audit you again because they consider you a risk factor.

While there’s no set-in-stone rule when it comes to auditing individuals who have been previously audited, the CRA will typically re-audit individuals who routinely make errors and omissions on their tax returns.

Plus, if you didn’t pass your previous audit with flying colors or owed/undeclared a lot of money, the CRA will come back and audit you again.

Tips for Avoiding a Tax Audit

No one wants to face a tax audit. This ordeal can be stressful, but if you are careful with your tax return, you can avoid one altogether.

Here are some tips for avoiding a tax audit:

  • Keep accurate records. The audit process typically begins when the CRA notices an error or incongruency. By keeping accurate records, either by hiring an accountant or using accounting software, you can ensure that your taxes are accurate and filed properly.
  • File your taxes on time. Although filing late taxes doesn’t necessarily trigger an audit, creating a history of compliance can help you avoid one.
  • Use your CRA My Account. You can register for a CRA My Account and keep all of your tax information and account balances in one place. This will greatly help you avoid an audit!
  • Amend your return. If you file your taxes and then realize you have made a mistake, amend your return immediately. It can help you steer clear of an audit but just don’t amend your taxes too frequently – you want to maintain that history of compliance.
  • Fill in all information. Even if you have to put in $0, make sure you fill out everything on your tax return. An honest mistake or omission may draw the attention of the CRA.

What Should I Do If I’ve Been Selected for a Tax Audit?

If you have been selected for a tax audit, you must comply with your auditor. You will receive an initial notice that indicates what types of records the CRA requires during the process.

This is why keeping good records is essential when it comes to your taxes. Hopefully, you can easily fill any holes noticed by the CRA with the proper documentation.

However, if they are asking for information you do not have or you are confused by the process, it would be beneficial to seek the professional services of an expert accountant.

They can help you organize your records, obtain missing information, and file for an audit appeal if applicable.

An Ounce of Prevention is Worth a Pound of Cure

Let our experts at Liu & Associates take care of all your tax needs.

Whether you are an individual or own a business, we can help you stay organized, understand taxation laws, and avoid a tax audit altogether!

Contact us today to get started.

What Business Expenses Are Tax-Deductible?

Business woman using calculator and writing make note

Do you know what tax deductions your business is eligible for?

When tax season comes around, it’s important to make the most out of eligible deductions to save you money and help your business grow!

However, before you start claiming whatever you can for your business, be sure that all deductions are supported by original invoices and paperwork.

Doing so is the best way to avoid an audit or any issues if you are audited.

Eligible Expenses to Claim

As a general rule, businesses can claim expenses that maintain the business and ensure that it is operational.

And there is a lot you can claim! To maximize your business tax return, be sure to take advantage of these tax-deductible business expenses:

Advertising

You can deduct costs for advertising on Canadian radio and television, in Canadian newspapers, and digital advertising.

Bad Debts

If you have already included an accounts receivable as income during the year, you can claim it as a bad debt if it won’t be paid.

Business Start-Up Costs

Tax-deductible business expenses include those that preceded the operation of your business as long as you operated your business in the fiscal period in which the expense was incurred.

Business and Property Taxes

Be sure to deduct any business taxes incurred while running your business as well as property taxes for the building and land where your business is located.

Business Fees and Licenses

Fees, licenses, and dues related to your business are deductible unless the main purpose of the fees is dining, recreation, and entertainment.

Business-Use-Of-Home

If you run your business from your home, you can claim use-of-home expenses such as heat, electricity, insurance, maintenance, and other expenses.

However, you can only claim a percentage that is dependent on the size of your office compared to the rest of your home.

Capital Costs and Allowance

When you acquire a depreciable property (such as equipment, a motor vehicle, a building, etc.), you cannot deduct the cost of the property because its value decreases over time.

Instead, you can deduct the cost over a period of several years

Delivery

If your business is involved in delivery, freight, and express, you can claim certain expenses on your taxes.

Insurance

Male arm in suit offer insurance form clipped to pad and silver pen to sign closeup

All ordinary commercial insurance premiums can be deducted as a business expense including any amounts incurred on buildings, equipment, and machinery.

Auto insurance claims are made under vehicle expenses.

Interest

When it comes to tax-deductible business expenses, you can deduct interest on money borrowed for business purposes.

Professional Fees

If you employ the services of an accountant, lawyer, or other eligible professional, you can claim those fees.

Maintenance and Repairs

You can deduct the cost of labor and materials when it comes to minor repairs or maintenance done to your business property.

Meals and Entertainment

This business tax deduction applies to meals and entertainment during business-related travel or events. It also applies to long-haul truck drivers who can deduct 80% of their food costs.

Motor Vehicle Expenses

If your business utilizes a motor vehicle to earn income, you can deduct related expenses.

Office Expenses and Supplies

When you run a business, you can claim the costs of office supplies such as pens, paper, and any supplies required to provide your goods and services.

Office expenses do not include capital expenditures.

Prepaid Expenses

Under the accrual method of accounting, you can claim expenses you paid ahead of time such as warranty, contracts, taxes, and workers’ compensation liability.

Rent

If you rent your business property, you can deduct rent for the land and building.

However, if you are claiming rent as a home business expense sense, this is done under business-use-of-home.

Salaries and Benefits

As a business with employees, you can deduct gross salaries and other benefits such as CPP (Canada Pension plan) and EI (Employment Insurance) premiums.

Utilities

Tax-deductible business expenses for utilities include telephone, gas, oil, electricity, water, and internet – as long as you incurred the expense to earn an income.

Ineligible Expenses You Cannot Claim

While there are many tax-deductible business expenses, there are some that you cannot claim on your business taxes:

  • Clothing purchases including special gear
  • Reimbursed maintenance and repair costs
  • Political contributions
  • Governmental penalties and fines
  • Personal purchases

Recent Changes to Deductions (If applicable)

One recent change made by the CRA in 2017 eliminates the ability to claim allowance on eligible capital property.

Property that would have been considered eligible capital property is now considered to be depreciable property and can be claimed under “capital cost allowance.”

FAQs

How do I claim items and services that I use for both home and work, like my cell phone or vehicle?

You will have to figure out the portion that is used for business, create a percentage using the total use, and deduct that from your business taxes.

For example, if you use your cell phone for 25 hours per week for business and 90 hours total for the household, this would equal 27% so you would deduct that percentage of your cell phone bill.

I do all of my business taxes and invoicing online. Do I need to keep paper copies?

While you don’t necessarily need physical copies of this information, you will need to have access to them for at least six years in case you are audited.

How do I deduct business equipment I bought for my staff?

Depreciable equipment, such as laptops, is considered capital costs. You can deduct the value of the equipment over a number of years – this is known as a capital cost allowance (CCA).

I have an office at both my business and my home. How do I claim this?

Typically, you would claim your main office on your business taxes but this would be a great question for a professional accountant who can give you an answer based on your unique situation.

Need More Help Understanding Business Tax Deductions?

Liu and Associates are here to help? 

Our team of professional and knowledgeable accountants can guide you through filing your business taxes to ensure you get the best return possible and avoid any inconvenient audits.

Let’s chat today!

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.