Taxes/Write-offs in Canada?

Shannon, I don't want to sound abrupt, however, you should speak with a tax accountant.
Gook luck
C

I second the comment about speaking to an accountant. Stat.

If you're going to do it yourself, though, familiarize yourself with the tax law and process. Quicktax, the software, makes it fairly easy to do your own unincorporated small business taxes once you've set up your business profile.

I reserve the right to be entirely wrong about this, but: As far as the mortgage goes, you can claim (not write off, but claim) a percentage of the interest paid on your mortgage equal to the percentage of the square footage of your dwelling used exclusively for business purposes/used for the purposes of meeting clients, etc. IE, if you use one room of a ten room house exclusively for your writing business, you can claim 10% of your mortgage interest paid (NOT the mortgage payment, IIRC) against your writing income (not your total income). You can also claim 10% of heating, power, hot water, maintenance, insurance, etc.

But yeah, talk to a tax professional or do the research via the software or the Revenue Canada online sources.

Yup. Talk to a tax accountant.

I used to work as an accountant in Canada, but I didn't do taxes. There are some general rules mentioned already about being able to write off household expenses like rent or mortgage interest or utilities if you're using a portion of your home exclusively for work purposes. Exclusive is the key word here. If you have an office that you use for writing, but you also use it for reading or the kids use your computer to play games or it's also the entertainment room, it doesn't count. But there are nitpicky details here that you need to go over with an expert, hence the tax accountant.

As for your friend and his 20% minimum, that's new to me. But I haven't lived in Canada for 5 years, so for all I know, it is new.

Since your accountant hasn't been doing anything about these expenses, and possibly other expenses, you might want to consider getting a new accountant. Additionally, depending on what a tax accountant says, you might be able to write off additional expenses from past years. If that's the case, you could potentially either refile past years or bring forward some expenses to write off in the current year. But that needs to be discussed with a tax accountant.

I think it also depends on how much income your business is generating. Apparently there's a turning point if you start making more than $30,000. At that point, you need to start charging GST when you bill for services, and then you need to pay GST to the government. I don't know - it's all very complex, and definitely if you want to make more than a standard tax claim you'll need to hire yourself an accountant.

Unless things have changed with our tax laws, which happens frequently, keep all receipts for expenses incurred for writing. Some gas mileage can also be included. A percentage of large items like computers may also be claimed, depending on the year purchased.

If a room in your house is set aside as an office, you may claim a portion of hoursehold utilities.

Be aware that you must have income from writing to claim expenses. I believe you can get away with a year or so with no income and still claim, but only your accountant can tell you.

Good luck!

scheherazade said:

I think it also depends on how much income your business is generating. Apparently there's a turning point if you start making more than $30,000. At that point, you need to start charging GST when you bill for services, and then you need to pay GST to the government. I don't know - it's all very complex, and definitely if you want to make more than a standard tax claim you'll need to hire yourself an accountant.

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Yup, that's true about the GST. But then you can claim back all the GST paid on employment expenses, which can make for a nice bump...

Willietheshakes seems to have it right. My husband was allowed to claim a percentage of anything related to household expenses - mortgage interest, utilities, property taxes etc - according to the square footage used for the business. Don't forget to include any storage areas or outbuildings where you might keep things related to the business.
The best idea is to see a tax accountant and let them help you set up your books so you can keep accurate records of all expenses. If you intend to hire them to do your taxes at tax time then the interview and advice is generally free.
Good luck!
Linnea

Shannon, I think you misunderstand. When you can claim part of your mortgage interest against your taxes it does not reduce your mortgage payments at all. It simply increases your base amount that you don't have to pay taxes on. So at the end of the year, when you do your taxes, there is a base amount of income that you do not have to pay income tax on. With deductions, including office space (key being that it has to be used for office work only) expenses, etc, the base amount increases thereby reducing the amount of income you do have to pay taxes on. So the only benefit you see is at the end of the year when you pay your income taxes or receive a refund.

Now that refund could be used to pay down the principle of your mortgage, penalty free, if you shopped around and got a mortgage where you can make extra payments against your principle. That reduces the length of your mortgage but will not reduce your mortgage payments. Nothing will reduce your mortgage payments month to month. The best way to do that is find a reputable mortgage broker and shop around for the best mortgage you can find. Get as big a downpayment as you can (be aware that the federal gov't just signed a law that requires 5% down on any mortgage backed by the CMHC), make sure your credit rating is top-notch, and you should be able to find a really good mortgage. The broker will be key. Make sure he is reputable. Ask around.

Good luck on your writing. And finding a good accountant. Don't let him do anything illegal cause revenue canada will find out. Any questions, phone revenue canada. They've always been awesome with me.

Oh boy, and I've seen Revenue Canada/Canada Customs and Revenue Agency be absolutely horrible to so many people. Talk to three different people and ask the same question, get five different answers. Has it changed in five years?

I don't know. All I know is I didn't file for four years and they were understanding and helped me get things in order and generally didn't hassle me or threaten me which made it easier for me to file. I think some of it has to do with your own attitude going in. And no doubt the person you are talking to as well. They were helpful with the monthly payments I made, didn't demand that I give them all my money every month, so I had a positive experience with them.

You don't always need an accountant.

I went through a federal EI self employment program and we learned all sorts of things about what we could and couldn't claim as taxes. I ran a consulting business from my house for 2 years and did my own taxes and accounting the whole time. Canadian taxes are really pretty easy to deal with.

Here's one I liked:

My house was 1600 sqft, but my office was only 100. 6% of the total area, right? No. My house had 6 rooms (kitch, LR, office, 3 brs), one of which was used for my business. Therefore 17% of my mortgage, property taxes, utilities were claimable as credits. If you do all your business through the internet, put your internet into your company name and claim it all. My cell phone was the only number for clients so my entire bill was claimable. (My phone package came with 2 numbers, the other I used for personal, but the entire bill was in the company name).

In order to set this all up, you do need to go through all the hoops of business licences, GST numbers (even if you don't collect it, and you don't have to). The benefit of this though, is that you can also buy yourself Personal Optional Protection through WCB. I had 60K worth of income coverage for like $50 a year. If I fell down the stairs I could get comp.

There are all sorts of fancy things you can do. The trick is record keeping. That's the most important thing, according to the tax accountant who used to do audits for Revenue Caada, when he did the workshop on claiming expenses. A set of well kept and detailed records goes a long way to deterring an auditor from bothering with you.

PM me if you have questions.

jennontheisland said:

You don't always need an accountant.

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Yeah, I don't use an accountant either. The system is fairly straightforward if you're careful to read every line & exclusion...

I see that everybody already said to consult a professional. That's good advice. Take it. They will probably find more to write off than you are even aware of.

One important issue to consider when going for percentage of house, etc...

it has to be totally dedicated space that you claim against. I don't know about your friend, but for someone who is, say a freelance writer...they cannot claim a percentage of their home against the business if they don't have a dedicated office space for that business. If you work from your dining room table, you CANNOT claim your dining room's living space. You must have a room with a door that you use as an office. Now I don't know how many times Revenue Canada looks into things like this, but if you're in business you should do it totally above board. Look into it...I'm sure this is still how it stands. For self-employed there are tons of resources...you just have to consult one of them.

And for GST, you have to earn a certain amount before you have to charge it. The number $40,000 is coming into my head, but I'm sure that's wrong. I just know that I do not need a GST number for my business...as I come nowhere near the total needed. Yes...make a list of questions and sit down with an accountant who knows self-employed tax info...and then, once you complete your questions, ask them if there is anything else you should know.