Home Office Expenses for Employees & Self-Employed Individuals When an individual uses a space in their home to conduct business activities, whether it’s for employment or their own business, they are able to claim certain expenses on an income tax return. Home office expenses include work-space-in-the-home expenses, office supplies, and specific phone expenses. Keeping track of these expenses and saving receipts, invoices, and any other relevant documentation lets you claim it as a deduction on your return. A deduction reduces the amount of income you pay tax on, thus reducing your overall income tax owed. Temporary Flat Rate Method to Claim Home Office Expenses When employed and working from home, the temporary flat rate method simplifies your claim. Eligibility is based on whether you worked more than half of your work hours from home for at least four consecutive weeks in the year. You can claim $2 per day you worked from home during the period plus any additional days worked at home caused by the COVID-19 pandemic. The maximum deduction from this method is $400 which constitutes of 200 working days in 2020 or $500 from 250 working days per individual in 2021 and 2022. With this method, your employer does not need to complete and sign a Form T2200. Documents are not needed to support your claim as well. Detailed Method in Claiming Home Office Expenses This method is used when an employee is required to work from home or did so because of the COVID-19 pandemic, but needs a completed and signed T2200S or T2200 form from your employer. The amounts claimed must also be supported by documents as proof such as receipts and invoices. Understanding Your Work Space Use for Business To claim using the detailed method, you need to calculate the size and use of your work space. This is separated between employment and personal. The size of your home and work space compares the size of your home to the size of your work space. All finished areas within the home, including hallways, bathrooms, and kitchens are considered in the size of your home. Once you have the size of your home in square metres or square feet, calculate the size of your work space. With an open concept design, use a reasonable percentage of the open space as your work space. The entire floor space cannot be used. Once you have the areas of your work space and home, use the following formula to calculate the percentage of your home used as a work space: (Size of Your Work Space / Size of Your Home) X 100 = Your Work Space as a % of Your Home The number of hours the space is used for work affects the amount of expenses that can be claimed. This is dependent on the type of work space, between a common (shared) area or designated room. Common (Shared) Area A common area is a space that has other purposes besides work. Some examples include if you worked at a kitchen table or use a shared family computer room. If this is the case, the claim is based on your employment use of the space. This is calculated using the number of hours the space is used for work. Use the following formula to calculate the percentage of time you can claim for the work space: (Hours Worked / 168 Hours (Total Hours in a Week)) X 100 = % of Time You Can Claim for the Work Space Designated Room The work space is considered a designated room if it is only used for work. One example is a spare room. If this is the case, your claim is not affected by the number of hours the space is used for work. The claim will use 100% of the work space expenses. What Can You Claim as Home Offices Expenses? Salaried Employees can claim electricity, heat, water, utilities portion of condominium fees (electricity, heat, and water), home internet access fees, maintenance and minor repair costs, and rent paid for a house or apartment where you live. Commission Employees can claim everything listed above and more. This includes their home insurance, property taxes, and certain leases related to earning commission income. Some of these leases include that of a cell phone, computer, laptop, tablet, or fax machine. Salaried and Commission Employees can not claim mortgage interest, principal mortgage payments, home internet connection fees, furniture, capital expenses (replacing windows, flooring, furnace, etc), or wall decorations. Office supplies and phone expenses can be claimed if not reimbursed by your employer as well. This is if they are required for work but are claimed on a different part of the T777 or T777S form, outside of your home office expenses. Limitations on Home Office Expenses Work-space-in-the-home expenses that can be claimed are limited when: Self Employed Home Office Expenses If you use your home to as a workspace, it can also be claimed on your tax return. It must be either your primary place of business or the space is used only to earn business income regularly and on an ongoing basis. This can be to meet your clients, customers, or patients. In this case you can deduct part of your maintenance costs which include heating, home insurance, electricity, and cleaning materials. Additionally, part of your property taxes, mortgage interest and capital cost allowance can be claimed. It is still based on the area of the workspace divided by the total home area. When the space is used for both business and personal, a percentage calculated from the hours used in a day for business divided by 24 hours (the total hours in a day) is applied to the expenses. When the space is only used for part of the week, the same consideration applies. Business-use-of-home expenses can’t be used to create or increase a loss. It can’t be more than your net income prior to deducting these expenses. Instead, the lesser of the following amounts can be deducted: […]
Author Archives: Advanced Tax
Highlights from the Canada Federal Budget 2023 On March 28, 2023, the Deputy Prime Minsiter and Minister of Finance delivered the 2023 Federal Budget. Named the “A Made-In-Canada Plan”, this budget emphasizes economic growth, public healthcare, and incentives for businesses to pursue clean energy. Read about some of the notable highlights here. Proposals to Employee Ownership Trusts by the Federal Budget An Employee Ownership Trust (EOT) is used to facilitate the purchase of a business by its employees. It doesn’t need them to pay the business owner directly and is an option for succession planning. The 2023 federal budget puts out new rules that are effective as of January 1, 2024. The main proposals of the budget include extending the five-year capital gains reserve to a 10-year reserve for qualifying business transfers into the EOT with a minimum of 10 percent of the gain being brought in annually. Additionally, taxpayers receiving a shareholder loan from the corporation would have an exception to extend the repayment period from 1 to 15 years for amounts loaned to the EOT to purchase shares. Finally, an exemption to EOTs from the 21-year rule of disposing capital property has been proposed. Federal Budget Clean Energy Incentives Clean Electricity Investment Tax Credit This is a 15% refundable tax credit for investments in specific activities to generate electricity and equipment for transmitting it between provinces. New projects and the refurbishment of existing ones are eligible but will not be available after 2034. Clean Technology Manufacturing Credit A 30% refundable tax credit will be offered for the cost of investments in new machinery and equipment. It must be used to manufacture or process certain clean technologies and extract, process or recycle certain critical materials. The credit applies to property acquired and available for use after January 1, 2024 but will be phased out between 2032 and 2034. It will also include geothermal systems that are eligible for capital cost allowance (CCA). Clean Hydrogen Investment Tax Credit This is a refundable tax credit between 15 and 40 percent for eligible project costs in producing clean hydrogen. It also comes with a 15 percent tax credit for specific equipment. Reduced Rates for Zero-Emission Technology Manufacturers Reduced tax rates of 4.5 and 7.5 percent for zero-emission technology manufacturers is proposed to be extended by 3 years to 2034, but will start phasing out in 2032. It will also include manufacturing nuclear energy equipment and processing and recycling nuclear fuels and heavy water. Proposed Personal Tax Measures in the Federal Budget Alternative Minimum Tax The federal budget 2023 proposed an amendment to the Alternative Minimum Tax (AMT) for individuals. It is a flat 15 percent tax based on individual income with an assumption of a ,000 exemption. What it does is that it allows less deductions, exemptions, and tax credits that would usually be applicable under regular tax rules. It applies when the 15 percent tax is greater than the tax calculated when all deductions, exemptions, and credits are allowed. The proposal expands the AMT by limiting tax preferences in the calculation which are as follows: Improvements to the Registered Education Savings Plans (RESP) The 2023 Federal Budget proposed an increase to the limits of Education Assistance Payment withdrawals from RESPs. This limit is to increase from $5,000 to $8,000 for full-time students and from $2,500 to $4,000 for part-time students. Divorced or separated parents will also be able to open a joint RESP for their children. Federal Budget Changes to Registered Disability Savings Plans (RDSP) A 3-year extension of temporary measures that allow qualifying family members to open RDSPs for adults who can’t do so in their own capacity and don’t have a legal representative. Qualifying family members include parents, spouses, common-law partners, or siblings and will remain active until December 31, 2026. Grocery Rebate 2023’s federal budget brings forth the Grocery Rebate. This one-time payment is administered through the Goods and Services Tax Credit (GSTC) system. Maximum amounts are $153 per adult, $81 per child, and $81 for the single supplement. It will be phased in and out as per the same income levels that are considered by current GSTC rules. If you would like to read about the full budget, just click on the link here to access the downloadable on CRA’s website. Contact us to find out how the new federal budget will affect your taxes through email, phone, or by visiting our office in Richmond, BC.
What is Virtual Bookkeeping? Cloud, remote, or virtual bookkeeping is when an accountant or bookkeeper provides services remotely. Cloud-based softwares make this all possible and is much more flexible for the business. Technically, there aren’t significant differences between virtual and regular bookkeeping except that the client doesn’t ever need to see the accountant and bookkeepers in-person. Additionally, virtual bookkeepers usually make more effective use of cloud-based accounting softwares to keep track of financial documents and organize them. In addition, using softwares to match receipts through simple photos and scanned documents ensure the records kept are accurate. Where Can You Find Virtual Bookkeeping Services? You can hire a virtual bookkeeper and manage them as a remote employee or work with a bookkeeping and/or accounting firm to outsource it. Outsourcing your accounting to a firm saves you the work of managing payroll for another employee or even a team. On top of that, it means you don’t need to manage another person which gives you more time to focus on your business. A bookkeeping firm may not be able to file your taxes but an accounting firm will be able to do your bookkeeping and file your taxes. Working with a CPA accounting firm is the next step up, they are experts in the fields of finance and can take you books further than just balance sheets, cash flow statements, and profit & loss statements. They can perform financial analysis, file business tax returns, and work on your tax planning. Not every accounting firm offers virtual, cloud or online bookkeeping services. Some may need to see you in-person to begin an engagement. Regardless, Advanced Tax offers bookkeeping services nation-wide. No matter where you are in Canada, we can help you get the services you need through cutting-edge cloud-based, accounting softwares. How Does Virtual Bookkeeping Work? Virtual bookkeeping tools streamline the bookkeeping process, without the need to be in any specific place. Using the right software tools for cloud bookkeeping ensures the process is efficient and accurate. These tools may have monthly fees but are worth every penny for the value they bring. Bill Pay & AP Software Virtual bookkeepers can automate the accounts payable process with bill pay softwares. This expedites the way a company receives, approves, and pays invoices. Digital formats allow bookkeepers to get this done anywhere through remotely managing the accounts payable. One example would be Bill, as it is a tool for remote bookkeepers to approve, pay, and sync bill payments. Document Management Managing documents, invoices, and receipts related to financial transactions may seem to be a hassle – but really makes a business much more efficient. Once a digitizing process is set up, forget about file folders and big banker’s boxes. Just get your business a specialized scanner like the one’s sold at Fujitsu, and you won’t look back. Invoice & AR Automation Remote bookkeepers can also systemize the accounts receivable process. This can be done through cloud-based invoice automation tools to quickly create and send invoices. Additionally, they can track payment (or the lack of one), and send payment reminders as well as estimates which can be converted into invoices. These softwares will often integrate with other cloud bookkeeping softwares as well. Credit Card Account Management Handling expenses, credit cards, and receipts accurately is tough for many businesses. Yet, with a software like SutiExpense, this process can be automated. Employees can create, submit, and manage expense reports while submitting images of receipts through the app. Then, approvals can be done through a workflow and reimbursements can even be made for said employees. All of this integrates with many cloud-accounting softwares to simplify your bookkeeping process as much as possible. Benefits of Virtual Bookkeeping If you are looking into outsourcing your bookkeeping to a virtual, cloud, or remote bookkeeper, look no further. At Advanced Tax, we can service you from anywhere in Canada so just contact us today to set up a meeting and get a quote from our CPA accountant.
Bookkeeping Tips for a Small Business in 2023 Bookkeeping refers to recording financial transactions and is a vital part of the accounting process for any organization. Preparing source documents for transactions, operations, and other events involving finances are all part of it. Transactions could include purchases, sales, receipts, and payments made by the business or organization. A bookkeeper is the person or third-party responsible for performing bookkeeping functions. They document every record of sales, purchases, receipts, and payments. The documentation of each financial transaction is then classified by the payment method, cash, credit, or cheque and then into its appropriate ledger. Some common ledgers used by businesses include petty cash, suppliers, customer, and general ledgers. Accountants take the information recorded by bookkeepers to create financial reports and conduct further analysis. The bookkeeper gets the business’ books ready for a trial balance, but the accountant puts together the income statement and balance sheet. The Two Main Bookkeeping Systems With single-entry bookkeeping, the main record is the cash book which is also known as the cheque account or current account. All entries are allocated through different categories of income and expense accounts. Seperate records are created for petty cash, accounts payable, and accounts receivable. Other important transactions can include inventory and travel expenses. Most modern bookkeeping softwares take care of single-entry bookkeeping to save time and avoid miscalculations. The double-entry system involves having every transaction or event changing at least two different nominal ledger accounts. Ledgers are a permanent summary of all amounts entered in supporting journals, listing individual transaction by date. They show the balances of the accounts in chronological order through daily recording of financial transactions. This information is used by the balance sheet and income statement. The primary uses of ledgers include the sales ledger for accounts receivable and the purchase ledger for accounts payable. What is a CPA’s Role in this Process? Chartered Public Accountants or CPAs are responsible for supervising the controls and systems for bookkeeping, minimizing errors in the many financial transactions being recorded in a business or organization. Tips and Tricks for Effective Bookkeeping Systems When working with your finances, it is vital that the records are kept accurately and effectively. Data entry may seem tedious, but it is key to creating an accurate financial overview of a business and what is a business but it’s finances. Some basic bookkeeping tips for a small business include: With the amount of financial transactions any business owner goes through, it’s clear that it’ll take time to keep the business’ bookkeeping system on track. Assigning transactions to the right accounts, scanning all relevant documents and uploading them to the right places, and managing the softwares and tools needed is a lot to deal with. Your time is better used at running your business and a professional accounting firm is there to make sure you have an accurate picture of your finances. Having a clear financial picture of your business helps you save on taxes and make better decisions. Get in touch with our accounting company in Canada today to help you get your bookkeeping streamlined and make the most out of your money.
Vacation Pay and Entitlement Per the Canada Labour Code Federally regulated employees in Canada have standards that are described in the Canada Labour Code. It sets minimum standards for employers to follow involving annual vacation entitlement, vacation pay, and general holidays. If your collective employment agreement or other work arrangement has rights that are equal to or better than the Canada Labour Code, there is a provision for third party settlements of disputes. Annual Vacation Entitlement Federally regulated employees are entitled to a set number of weeks of vacation upon completion of years of continuous employment with the same employer. The entitlements are: One year of employment refers to a continuous period of employment for the same employer. This definition includes: To be entitled to any period of vacation, a year of employment must be completed. Your vacation pay is determined by the wages earned during the year of employment. Choosing the timing of an annual vacation must be either mutually agreed upon with your employer or is set by them. Your vacation needs to begin before the end of 10 months after completing each year of employment. If the vacation period is chosen by your employer, 2 weeks notice must be given of when it will start. Annual Vacation Pay Vacation pay can be paid up to 14 days before the start of your vacation. It can also be paid during or immediately after your vacation. To calculate your annual vacation pay, a percentage is taken from your gross wages earned during a year of employment. Years of Employment with the Same Employer Entitled Weeks of Vacation Vacation Pay % of Earnings 1 Year 2 Weeks 4% of Earnings 5 Years 3 Weeks 6% of Earnings 10 Years 4 Weeks 8% of Earnings Wages or earnings include every form of payment for the work you performed. This does not include tips and other gratuities. Employees can waive, postpone, or split vacation for a specified year of employment as long as there is a written agreement with your employer. When on leave with pay, your employment status doesn’t change and you still accumulate benefits. This includes vacation pay and time during the leave period. If the leave is without pay, your seniority will continue to grow but vacation pay will only be calculated on wages earned during the year of employment. This leave of absence will not affect the date you become eligible for additional weeks of vacation or increases in vacation pay. If your employment ends, your employer must pay out any vacation pay owed based on any completed years of employment. Learn more by visiting the CRA’s page on Annual Vacations and General Holidays for Federally Regulated Employees here.