Author Archives: Allan

How is an Internet Business Taxed in Canada?

Essentially, Internet businesses are taxed in the same way that all businesses are taxed. The Canada Revenue Agency, or CRA, does not base its system of taxation on the way in which a business chooses to go about its operations, or the medium through which it does its business. Instead, it is based on the form of business that is being operated. This applies not just to income taxes, but to sales taxes. Even on the Internet, Canadian businesses must charge local Provincial Sales Taxes (PST) and the Federal Goods and Services Tax (GST). An Internet shop that is run out of Montreal pays the same taxes as a physical shop in Montreal.

If your business is a sole proprietorship, you are required to fill out a Statement of Business Activities (Form T2125). This form can be found in the T1 Income Tax Form. If, on the other hand, you own a business which is incorporated, you must report your income through a T2 Income Tax Return. You may want to hire an accountant to help you with this. An accountant can help to make your job a lot easier, saving you time and possibly money in the process.

As with any other business, you will be able to claim business expenses. Business expenses are costs that you have incurred in order to keep your business going. You will want to be careful with what you choose to claim. If you don’t claim enough, you are paying more taxes than you need to. But if you are claiming too much, the CRA may end up choosing to audit you, which can make your life difficult. This is another reason to consider having an accountant help you with the process.

As with any business, Internet businesses in Canada are required to keep records that can be made available to the CRA upon request. The required records are the same as for any other business, must go back six years, and they need to be maintained in Canada. In addition, Internet businesses are required to keep electronic records in addition to physical paperwork.

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GST & QST rebates for new housing and substantial renovations

In Quebec, sales taxes of GST and QST apply to the sale of new housing. The cost of renovation services and construction materials is also applicable to additional GST & QST taxes. Under certain conditions, you may be entitled to a rebate (partial refund) of the GST and QST you paid on the purchase of new housing or on substantial renovation work done to your home. The rebate is equal to 36% of the taxes paid, but may not be over $6,300 in GST & $5,573 in QST.

The amount of the rebate is progressively reduced where the purchase price or fair market value of the new or renovated housing and the land is over:

$350,000 for GST purposes

$200,000 for QST purposes

No rebate is available where the purchase price or fair market value is:

$450,000 or more for GST purposes

$225,000 or more for QST purposes

For example, if you spend $95,000 plus taxes to renovate your home in Montreal, it will cost you an extra $12,231.25 in sales taxes. The GST/QST rebate allows you to receive $4,403.25 in cash refunds.

Contact us to inquire about our rebate claim services.

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How to reduce mail from the Canada Revenue Agency?

Did you know that you can tell the Canada Revenue Agency electronically to stop or restart the mailing of certain communication items to your place of business?

If you prefer not to receive your statement of arrears, statement of interest, statement of interim payments, or remittance envelope, use their Online Requests for Business service to let them know. You can access your up-to-date account information through their “My Business Account” service. Help leave a green environmental footprint by reducing paper consumption.

The Online Requests for Business service is available for goods and services tax/harmonized sales tax (GST/HST),* corporation income tax, excise tax and duty, and other levies accounts. You can also use this service to request a payment search, an interest review, and more from the convenience of your computer.

To make an online request, go to www.cra.gc.ca/requests-business. You can also make online requests and access your up-to-date account information at www.cra.gc.ca/mybusinessaccount.

*Except for GST accounts administered by Revenu Québec.

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My Business Is Incorporated; Do I Still Need To File A Personal Income Tax Return?

Taxes can be confusing when it comes to separating your personal income from your business income. When your business is incorporated, it becomes an entity itself, capable of being taxed, sued, and all other things that can be done to an individual. Do you still have to file a personal return, even though your corporation’s income is already taxed?

The short answer is: yes. In Canada, filing a tax return on income from your corporation does not excuse you from filing a tax return on your personal income. Of course, there are many caveats to this simple rule.

First, the type of corporation you run determines the type of return you must file. If you are a non-profit corporation, organized for charitable purposes, your corporation is not subject to the same tax consequences as a for-profit business, although your personal tax liability may be the same. Further, your tax consequences will be different if you are organized as a private corporation or a public corporation. In Canada, a Canadian-controlled private corporation enjoys a significantly larger tax advantage than foreign-owned corporations. Be sure to talk to your accountant about possible tax advantages from types of incorporation when you file your corporate papers.

Further, the area in which you do business will affect your tax liability and initial start-up costs. If you are doing business only in Montreal as a sole proprietorship, it makes sense to incorporate provincially, which is less expensive. However, if you are doing business in other provinces and Montreal is only your home base, then you should consider federal incorporation.

Another consideration when filing your taxes is your corporate structure. Your corporation’s income may or may not be tied to your personal income, depending on how you pay yourself. If you are an employee of the company, your salary will be taxed under your personal income tax, and the corporation’s income will be taxed under the corporate return. It pays to discuss with an accountant the options you have for financial setup when you incorporate. You can save significant money by paying yourself in certain ways.

However your corporation is set up, you should always file your personal income on a T1 return and your corporate income on a T2 return.

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How to set up a Business in Canada?

Chances are high that you plan to kick off a new business in Canada or why else would you be here? The idea of starting a business in Canada sounds interesting. To be able to give a tangible shape to your idea, it is important that you undergo a neat study of the Canadian market in general and Canadian mercantile law in particular. A budding entrepreneur must pick up an excellent grasp over Canadian business structure, Canadian taxation system and the Canadian custom and review agency (CCRA). This detailed research guarantees business success to a great extent.

There are two jurisdictions under which a business in Canada can be incorporated. First is under the Provincial law and second is under the Federal law. If you plan to limit your business operations to a particular Canadian province, you will have to adhere to the Canadian provincial law. Likewise if you plan to spread your business all across the country, you must hold on to the Canadian Federal law.

Once you are through with the initial stages of inception of a business idea, formulating a business plan and selecting a business name, you need to register the decided company name. It is mandatory to register the business name for almost all types of businesses in Canada. Following this, you will have to arrange for the finances. If you finance the business from your pocket altogether, what better? If however, you need some external source of financing, you may have to consult leading Canadian lending banks to obtain the same. Thereafter you will be required to obtain the necessary legal business license depending on the type of business that you plan to establish. Barring some exceptions, GST/HST registration is mandatory in Canada if sales exceed $30,000 within a calendar year. Last but not the least; you will have to arrange for business insurances in order to protect your business from risks and uncertainties.

The initial stages of setting up a business do seem overwhelming; however with the support of the cooperative Canadian Government, it soon becomes relatively easy.

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Tax Free Savings Accounts and Penalties

Recently we have had some clients approach us with letters received from the Canada Revenue Agency regarding their tax free savings accounts (TFSA) and a tax payable on over-contributions. The letter includes a Tax Free Savings Account Return and a transaction summary for 2009.

According to the CRA “If, at any time in a month, you have an excess TFSA amount, you are liable to a 1% tax on your highest excess TFSA amount in that month”. The 1% per-month tax will continue to apply for each month that the excess amount remains in the TFSA.

For example, if the limit is $5000 and you make the initial $5000 investment, plus an additional $600, then you will have to pay a 1% penalty on that $600 which in this case means $6/month.

You are allowed more than one TFSA account and are allowed to make withdrawals at anytime. However be aware that you will not be able to re-contribute any withdrawals until the new calendar year.

To find out about your maximum TFSA contribution limit for 2010, please refer to your latest notice of assessment received.

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Get a Head Start on Tax Planning for next year

Now that the April 30 Personal tax deadline has passed and your taxes are (hopefully) filed, make sure to plan properly for the 2010 tax year. In order to make next year’s taxes worthwhile, you need to make some changes right away.

Set up a monthly RRSP contribution from your bank account or payroll. Many individuals wait until the last minute to make an RRSP contribution or forget to do so. Why wait? By having your money deposited monthly, you’re paying yourself first and taking advantage of dollar cost averaging.

If you have taken advantage of the home buyer’s plan and/or lifelong learning plan, don’t forget to make that minimum RRSP contribution repayment during the year. Failure to do so will result in an increased taxable income based on your minimum repayment.

Keep all medical receipts, even those medical expenses partially reimbursed from your private insurance plan involves a tax deduction.

Keep all monthly/weekly public transit passes.

Keep all childcare expense receipts. Up to $5000 of childcare expenses can be claimed per child.

Keep all child fitness activities receipts. Up to $500 fitness activities may be claimed per child.

Position your investments tax efficiently. Capital gains and dividend income is taxed at lower rates than interest income. Keep all your low risk interest income earning investments inside an RRSP and/or TFSA.

If you are experiencing a life change, such as the birth of a baby or a marriage, make sure to take advantage of all tax benefits offered through the Government and start right away!

Don’t wait until next year to file your taxes and hope for a miracle! Proper tax planning does take a little bit of time and effort, but you will be rewarded financially if done correctly. Book an appointment with your Accountant today!

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On Your Side – Tips for filing taxes

The following newsclip was aired on CTV Montreal News at 6pm today Monday April 26, 2010.  Please take a couple minutes to view this clip on e-mail fraud and penalties if you do not file your income taxes on time.

CTV News

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What’s New for the 2009 Tax Filing Season?

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What is a Releve-4?

The Releve-4 is an official Revenu Quebec tax slip prepared by the landlord of a residential rental unit and issued to the tenant who was the occupant as of December 31 of the prior year. The value in the box A– “Impot fonciers relatifs au logements” represents the combination of property tax and school tax allocated to your dwelling which was included in your rent.

All tenants may be entitled to a Property Tax Refund if their family income does not exceed $50,411 for the tax year of 2009.

If you are a tenant and have not received your Releve-4, kindly ask your landlord for this document.

If you are a landlord and have not issued this document to your tenants, please do so immediately. The deadline to issue this document was February 28. Please remember that a copy of this Releve-4 and the RL-4 Summary must be mailed to Revenu Quebec. Failure to do so, may result in penalties of $25 per day up to a maximum of $2,500.

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