1. How much RRSP can I buy?
You can buy 18% of your previous year’s earned income. This information is also available on your Notice of Assessment of the previous year.
2. What Can I deduct from my employment income?
The following deductions are available on employment income:
- Moving expenses
- Child care expenses
- University tuition fees
- Medical expenses (prescription drugs, eye glasses and dental)
- RRSP
- Donations
- Professional and union dues
- Certain car, travel and office expenses are deductible by certain employees who need to travel for business purposes and are given a form called T2200 by their employers.
Business Income Tax
1. What deductions are available for business?
Simply-put, all expenses that are incurred to earn income can be expensed with the exception of capital assets, which are amortized at a prescribed rate by Canada Revenue Agency (CRA).
2. Should I operate my business as a sole prorietor, partnership or corporations?
This is a complex question and there are certain advantages and disadvantages to each of the business types. This requires in-depth consultation to customize your business to meet your needs.
3. What is the tax differential between unincorporated and incorporated business?
Unincorporated business income is taxed in the hands of the proprietor and can be taxed as high as 46.41% over $118,285 of taxable income. Whereas an incorporated business is a living, legal entity by itself – it pays its own taxes, files its own tax returns and pays 16.1% up to $500,000 of taxable income.
PROFESSIONAL INCORPORATION:
Medical professionals, and in particular, doctors and dentists, enjoy income splitting opportunities unique to their professions. On the other hand, they face many of the same business and investment challenges as other clients.
Our involvement will generally encompass acting as accountants for the professional’s medical/ dental practice and providing the related tax advise and tax compliance services.
With the recent changes that expands the tax benefits of incorporation for medical professionals, allowing the family to own shares, we are poised to assist our medical professional clients to navigate the tax planning opportunities and ownership options. Further, the lower corporate tax rates should allow the doctor or dentist to accumulate more investment assets in a company.
TAX FREE SAVINGS ACCOUNT:
As an alternative to the RRSP, wherein a tax advantage is received at the time of contribution, the TFSA allows the individual to accumulate $5,000 each year a tax return is filed. The contribution to a TFSA is not tax deductible, but all increases to the fund, whether capital or income, accrue without tax consequences. Furthermore, funds removed from the plan are not taxed. TFSAs can be used as collateral on loans advanced by financial institutions whereas RRSPs can not. When a taxpayer dies, the TFSA is considered ended. The amount accumulated to the date of death, including unrealized capital appreciation, is tax-free. Any amount earned in the TFSA after death is taxable, unless the account is transferred to a surviving spouse or common-law partner. Such transfers do not reduce the contribution limit of the transferee. It should be noted that, commencing in 2009, fees for services under the TFSA are not deductible and losses incurred on the transfer of securities to the plan are not recognized for tax purposes.
RENTAL STATEMENT:
You need to file a statement of income and expenses if you received income from rental of real estate or other real property. If you are a co-owner of the rental property, your share of the rental income or loss will depend on your share of ownership. Generally, you can deduct any reasonable expenses incurred to earn rental income. If you rent part of the building where you live, you can claim the amount of your expenses that relate to the rented part of the building.
AUTOMOBILE COST:
For tax purposes, the capital cost of a car is limited to $30,000 plus HST. This means that if you purchase a $40,000 car for your business, you will lose a portion of the capital cost allowance deduction. Also if you are a HST registrant, you may only claim a HST input tax credit based on a $30,000 limitation, ( ie $3,900). If you lease a automobile then the monthly deduction is limited to $800.00 plus HST.