So you missed the tax filing deadline, now what?

April 30 has come and gone, and we accountants have survived another personal tax season in Canada.  But we’re not done yet – the deadline for self-employed individuals is June 15, and some other taxpayers may not have been concerned about meeting the April 30th deadline.

Taxpayer:  I know I’m getting a refund (or don’t owe any tax), and I haven’t filed my return yet.  Do I still need to file my tax return?

YES! Here’s why:
1) Your refund is your money…as long as you don’t file your income tax return to claim that refund, and it’s sitting with the Receiver General, you’re giving them an interest-free loan with your money.  Also, note that CRA has limitations on how far back they can issue refunds.  The CRA will only issue a refund if you file your tax return within 3 years of when it is due (i.e., by April 30, 2018 for your 2014 income tax return).  For returns with refunds owing beyond that time (up to 10 years late), you may still get your refund (or at least have it applied to taxes owing in other years) under certain circumstances and only if you apply for relief (but this is not guaranteed and up to CRA’s discretion).

2) If it turns out that you OWE taxes (either you miscalculated or CRA finds adjustments), the penalty for late-filing is 5% of the balance due, plus 1% per month that is late, plus interest.  For repeat offenders (you filed late more than 2 years in a row), the penalty can be double.  That’s a huge risk to take for not filing your return on time.

3) You could be missing out on tax-free money that the government gives certain groups of taxpayers

A) GST credits for lower-income taxpayers
B) Ontario Tax benefits (or other similar provincial tax credits) relating to sales tax and rent/property tax for lower-income taxpayers
C) Canada Child Benefits for families with children under the age of 18 (all families get a minimum amount based on the number of children they have; lower-income families get more)
D) Old Age Security Guaranteed Income Supplement for low-income seniors

Most of these programs have a July to June payment period based on your prior year income tax return.  If you file late, payments will at the very least be delayed.  This can be a huge cash flow problem for lower-income families who depend on these tax benefits to supplement their basic needs.  So filing on time, or as soon as possible after the deadline, is important.  AND if you’re self-employed, these are reasons to file sooner than later, and not to wait until the June 15th filing deadline.

And if you’re not filing your tax return to claim your refunds and other tax benefits, where else are you refusing to receive money that belongs to you?  Perhaps it’s in your business, with your clients, or in your job, or from friends and family members.

If you would like assistance in claiming your refunds and tax benefits, or don’t know where to start, feel free to contact me (Linda@visionspire.ca) for a complimentary consultation.  And if I can’t help you, chances are I’ll know someone who can.

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[author] [author_image timthumb=’on’]http://54.82.103.175/wp-content/uploads/2017/12/IMG_0012-resize-square.jpg[/author_image] [author_info]Linda Spencer is a CPA, CA, Canadian Tax Specialist and Money Mindfulness Coach. With over 20years of assisting business owners with the business and tax strategies, her mission is to eliminate stress and anxiety people experience around money and taxes, by empowering them with the tools, knowledge, strategies and mindsets that will put them in the driver’s seat of their business success and financial wellness, so they can have more harmony, joy and abundance in their life. [/author_info] [/author]

Are You Ready For a Tax Audit?

Are you at risk? The Canada Revenue Agency (CRA) continues to audit the following key areas, as these areas seem to be the ones of greatest error or non-compliance by small and medium sized businesses:

Denied expenses – CRA denies unsupported and non-deductible expenses. It is important to have proper and adequate documentation to support the expenditures.
Taxable benefits – CRA scrutinizes automobile benefits and other expenses such as travel expenses and phone and internet usage to ensure taxable benefits are attributed properly to employees.
Shareholder benefits – CRA continues to seek out personal expenses paid for and deducted by the business that should be denied or taxed to the shareholder. Taxpayers should carefully document the business purpose of all expenses and have practices in place to closely monitor shareholder accounts and credit cards to avoid these reassessments.
International compliance / cross-border transactions – Many business are unaware of the tax and reporting implications of conducting business outside of their country and engaging in certain financing transactions outside of Canada, including sales taxes, payroll and employee withholdings, and corporate tax reporting implications. For Canada and the US, there is information sharing and new processes at boarder security to more closely scrutinize cross-border business travel.
Sales & commodity taxes (or Indirect taxes) – There have been a lot of changes in the sales tax rules in Canada over the last few years, with significant changes affecting large businesses, cross-border transactions, pensions, and financial institutions. Many businesses are unaware of how these changes affect them. The CRA also continues to find and disallow ITC claims for expenditures with inadequate or improper documentation.
Non-arm’s length transactions – Whether domestic or international, if there is insufficient proof/documentation for the validity of the transaction between non-arm’s length parties (such as management or administration fees), the expense can be denied (but yet, the income still taxed in to the other party – resulting in double taxation).
Aggressive tax planning/schemes – Aggressive tax planning and abusive tax avoidance schemes are a global concern. The CRA has invested millions in its program to reduce aggressive tax planning or abusive tax avoidance schemes that contravene specific anti-avoidance provisions of the law. The CRA now has the tools to detect, correct and deter the non-compliance of taxpayers using aggressive tax plans, and there will likely be more audit activity in this area.
As part of this scrutiny, the CRA has recently sent notice that it will be increasing its audits of individuals who have claimed business or property losses. If you do receive an audit request letter or request for information, don’t sit on it or stick it in a drawer somewhere hoping it will go away or take care of itself (yes, people do this). Take the letter immediately to your accountant or tax advisor to assist you in dealing with it.

Not dealing with the CRA requests in timely manner can cost you hundreds or thousands or even more in additional taxes, interest and penalties, which can cripple a small business. But CRA auditors are people too – just doing their job, serving you, the taxpayer, as their client. You may have done everything correctly, or you may have made honest mistakes (CRA audits can be a great opportunity to learn and boost your tax management controls and practices). But be prepared. Talk to your accountant and ask them what your risks are and how you can reduce them.

[author] [author_image timthumb=’on’][/author_image] [author_info]Linda Spencer is a CPA, CA, Canadian Tax Specialist and Money, Marketing & Soul business coach. Her mission is to eliminate stress and anxiety around money and taxes, by empowering heart-centered small business owners with the tools, knowledge, strategies and mindsets to put them in the driver seat of their financial success and wellness.[/author_info] [/author]

12 Ways to Optimize Your Cash Flows and Taxes Before the Year is Through

Most entrepreneurs aren’t thinking about their 2016 taxes this month, but they should be…there are some things you need to do before December 31 to take advantage of certain deductions and tax credits for your 2016 tax return.  And, it’s also a good time to have a boost in your cash flows.  Here are 12 tips:

Increase Your Cash Flows

  1. Want a boost in your cash flows this last month of the year?Look at where you are leaving money on the table – it could be outstanding receivables, over-delivering on your services, not following up on leads (how awesome would it be to book another client or two just before Christmas?!).
  • While you’re at it, why not review your payment policies…maybe a change is required such that you’re getting paid in advance or at the very least on the day of service (that way you don’t have to worry about chasing those receivables after the fact).
  • Now is also a good time to review your pricing strategies to make sure your charging for value.  Now would be a good time to notify your clients of price increases that will take effect in January.

 

2.  Consider accelerating purchases for your business.

As a business owner, you probably have a good idea of the things you need for your business.  If you want to get the deduction from your income this year, purchase items you need in your business on credit in December and pay for them in January when your credit card is due.  This way you’ll get the tax deduction this year but defer the cash outlay until next year.

  1. Pre-sell packages/services/goods to be delivered in the new year.

‘Tis the season for giving, so why not offer an incentive for people to pre-order goods and services and pay for them now, that they’ll receive in the new year.  Examples could be taking custom orders for your goods for future delivery, offering gift certificates for clients to give to their loved ones that they can use in the new year, offer savings/bonuses to pre-sell a program/course/workshop that will take place in the new year.

4.  If you haven’t already done so, now is a good time to look at your 2017 plan.  When you have clarity in where you’re going, and align your actions to achieve that, you’re telling the Universe that you’re open and ready to receive.  That receiving may even happen sooner than you think.  Going back to my previous point – when you have clarity of your 2017 goals/targets/plan, you can decide which offers to promote and pre-sell now.

When you’re planning for the new year, plan with the end in mind and ask these key strategy questions:

    • What is your overall vision, purpose and goal?
    • Where will you play (play where your target clients are)?  How will you become more visible and build your audience?
    • How will you hit/exceed your targets?  What will  you offer, at what price? How/when will you get paid? What are you marketing/sales strategies? How will you know you’re on track?  What are your back up plans?
    • What capabilities/resources need to be in place to support that?
    • What management systems need to be adopted and implement to support that?

 

Optimize your 2016 taxes

So now you’ve injected some extra cash into your bank before year-end, the year would not be complete without thinking about how to optimize your taxes.  Here are some tax-saving tips that you’d need to consider doing before year-end.

  1.  Maximize your CCA (tax depreciation) claims.

Purchase business equipment before year-end to accelerate the capital cost allowance (CCA) deduction by one year.  For most equipment purchases, you get 1/2 the CCA deduction in the year of purchase.  So if you purchase in Dec 2016, you get 1/2 the year’s CCA in 2016, then a full year’s worth in 2017.  If you wait until early 2017 to make the purchase, you only get 1/2 the year’s CCA in 2017, even though you’ve been using it for almost a full year.   Again, buy them on credit and pay later, allowing your to get the deduction in 2016, but defer the cash outlay to 2017.

2.  Keep cash in the family and reduce your taxes.

Pay a reasonable salary to your kids/partner for actual work they do for you (this is a form of acceptable income splitting).  You get the deduction, and the income should be picked up in their income tax return for the year, presumably at a lower tax rate than yours.  But, also beware of additional tax compliance and amounts you have to remit (such as CPP contributions and completing T4’s).

3.  Maximize your car expenses.

If you use your car for business, and you know you’re car is in need of service and repairs (perhaps new winter tires?), make those necessary car repairs before year-end to get the deduction in your 2016 income (in proportion to your business use of your car).  While you’re at it, update your mileage log to track all your business km’s.

4.  Maximize the Canada Education Savings Grant (CESG) for the year by making your RESP contributions prior to December 31.

If you have kids under the age of 18, the Canadian government give you a grant on the RESP contributions made for your kids’ post-secondary education.  The grant is 20% of the RESP contributions, to a maximum of $500 on $2500 of contributions made in the calendar year.  Now is the time to top up your RESP contributions to take advantage of the maximum available CESG for the year.  There are additional grants available for low income families and kids with disabilities.

5.  Maximize your RRSP contributions.

Assuming no carry-over room or pension adjustments, you can contribute 18% of your earned income for the previous year to your RRSP in 2016 (to a maximum of $25,370 for 2016 contributions).  Many people wait to top up their RRSP contributions until February.  However, there are a few instances where it would make more sense to do so before the end of the year.

    • If you’re nearing retirement, and make spousal RRSP contributions, consider that if you wait until Jan/Feb 2017 to make those contribution, your spouse will not be eligible to withdraw them until 2020.  Making the contribution in 2016 accelerates the eligible spousal withdrawal to 2019.
    • As a tax free savings vehicle, if you’re 18 or older, you can make after-tax contributions to a Tax Free Savings Account (TFSA).  The maximum contribution for 2016 is $5500 (like RRSP’s, the unused contribution room gets carried forward and available to you in future years).  If you’re planning to make a withdrawal from your TFSA, do it now instead of waiting until January – that way your withdrawal is added back to your contribution limit for 2017 (otherwise you have to wait until 2018 to be eligible to add it back into your TFSA).

6.  Maximize your medical tax credits.

Medical and dental expenses incurred in the year can only be claim if paid in 12 month period (claim period) that ends on or before December 31.  So, you’ll want to pay those outstanding medical expenses/prescription refills/dental bills before year-end to maximize your claim for 2016.

7.  Optimize your charitable donations tax credits.

Total charitable donations in excess of $200 made in the year can give a higher tax credit (approximately 40% in Ontario) than your marginal income tax rate, giving  you a net benefit on your tax return.  But, the donations have to be made in on or before December 31 in order to be claimed on your 2016 tax return. So if you’re planning on giving, December is a great month to give.

8.  If you have unregistered investments which are giving you taxable gains in the year, consider selling stocks with accrued losses to offset realized gains for the year to reduce your taxable income.  Also, consider paying investment related expenses before year-end in order to get the deduction for this year against your investment income.

 

So there you have it – 12 ways to increase your cash flow and optimize your taxes for 2016.  Of course, these are general statements – each person’s situation is different and must be considered carefully before making decisions that will affect your taxes and cash flow, taking in to account the specifics of your situation.  I would suggest you speak to your accountant/tax advisor/investment advisor to be sure you’re making the best choices for your unique situation.  I’m happy to assist as well – contact me and request your complimentary clarity session to see how I may help.

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