Is there a worse fate than paying too much tax? Like most people, you do everything you can to (legally) reduce the amount of tax that you pay. You keep every receipt and you check last year’s tax return to be sure you don’t miss something that you claimed last year. But, are you claiming ALL of your deductions?
If you are earning income from offering services as a personal trainer, the Canada Revenue Agency (CRA) allows you to claim that you are a business. You have to declare all your revenue as from your training services (including any products that you might buy and resell to your clients), and you are entitled to claim reasonable expenses against this revenue.
For unincorporated businesses, revenue and expenses are reported on Form T2125 on your annual income tax return. You can pick up a copy of this form at any Tax Services Office, online at http://www.cra-arc.gc.ca/E/pbg/tf/t2125/ or you can request a printed form by phoning 1-800-959-8281. The form is included with most tax return software.
Some things to note when you are sorting your receipts. First, if you are not registered for GST/HST purposes, then make sure you claim the full expense listed on your receipt, not just the pre-tax portion. Second, you can only claim half of your meals and entertainment expenses; if you spent $1,000, you only get the tax break on $500. Third, your equipment will usually get reported on a different form – the T2125 CCA Summary.
CRA allows you to claim only a portion of the expense (amortization) for your more expensive, durable items. A camera would be amortized, but the memory cards would be expensed. On most equipment, each year (except the first year), you can claim 20% of all amounts not previously expensed. In the first year, you can claim 10% of the purchase price as an expense. In Year 2, you claim 20% of the purchase price less the 10% you claimed in Year 1; in Year 3, you claim 20% of the remaining balance, and so on. There are many different classes of assets, and each has a specific rate of amortization.
CRA will also allow you to claim a portion of your household expenses if you are using space in your house for office work, storing supplies, training, or otherwise working on your business. To determine the percentage of your expenses to claim, total up the square footage of workspace and divide by the total square footage of your house (exclude bathrooms, kitchens, and porches). The lines for entering these expenses, and the percentage of use are also on the Form T2125.
Finally, if you use your own vehicle for business travel, CRA allows you to claim a portion of your automobile expenses. You should keep a log of how much driving you do for business purposes. Show the date of the trip, where you went, and how far you drove.
Keep every receipt for the year, total them up and report them on the Form T2125 Auto. You will also need to know how many kilometres you drove for business and how many kilometres you drove in total for the year. So, if you drove 3,000 km for business and 18,000 overall, you would get to claim back 3,000/18,000 (or 1/6) of all your expenses.
For all expenses you claim, keep your receipts. While you do not have to submit them when you file your income tax return, you may be asked to supply them as proof at a later date. If you do not have the receipt, CRA may disallow your claim and you may have to repay the taxes.
Here’s the big benefit – if you work a “real job”, you can claim some losses from your business against the income from your full time job. This can lead to you getting a tax refund from taxes you paid in during the year at work. I see many people who keep their small business “under the table” to avoid paying taxes, when, in reality, they probably could get money back from the taxman if they reported it.
Please note that this discussion is for general information purposes only, and is not intended to be tax advice for a specific individual. Everyone’s income tax situation is different. If you need specific tax advice, please e-mail.
Rodney Payne, CGA is an accountant with over 15 years experience in tax. If you have a specific question about your business, you can e-mail it to firstname.lastname@example.org