H&R Block Insight

Every year taxpayers try to take advantage of as many tax deductions and credits as possible. A common question is; can I deduct any expenses I incur from employment like the cost of dry cleaning, commuting and office clothing?

The Canada Employment Credit was introduced for the 2006 tax return and was meant to help offset some of the costs of having a job. For 2009, this non-refundable credit is $1,044 and means that most Canadians will save up $156 through reduced payroll deduction.

For tradespeople, the rules are a little different. They are required to purchase tools as a condition of their employment and used over the longer term. There is a Federal tax credit for tools which allows a tradesperson to claim a maximum $500 deduction on tool costs above $1,000.

In order for the tool to be eligible, the following conditions must be met:

The tool must have been acquired in the year
The tool must not have been used for any other purpose prior to its acquisition by the tradesperson
The tool must not be an electronic communication device or electronic data processing equipment. Cell phones are not considered tools of the trade.

Saskatchewan is the only province that offers a similar tool deduction. For more information about deducting tools, please see hrblock.ca.

Spring is a popular time for cleaning and garage sales. As Canadians come out of hibernation and get ready to sell some of their unwanted items, a popular question is: Do you have to claim the money you make on a garage sale on your tax return?

Or if you sell all your collectibles such as hockey cards or Precious Moments figurines, do you have to realize a capital gain or income? What if you paint occasionally and sell one or two paintings a year?

In the eyes of the tax man, there is a difference between having a garage sale once a year and selling items regularly. A hobby is defined as an activity or interest pursued for pleasure or relaxation and not as a main occupation. But if the proceeds from a hobby become frequent the Canada Revenue Agency may consider you a business.

So if your paintings become more popular or you are selling online regularly, you may be considered a business. Then you need to decide how you will report your income, whether as a sole proprietor or as a corporation. There are benefits in choosing one over the other.

Here are some things to consider before incorporating:

Pros:

Company earns money rather than a person so it is not taxable at personal rates but business rates
In general, business tax rates tend to be lower than personal rates
Company selects their year end so it does not have to be December 31
Company can claim expenses against income
The Company is a business entity and helps limits the risk of personal liability - though most lenders will require small corporations to have loans secured by their owner

Cons:

Costs for incorporating can range from $300 to $1,000 to register and you will get a corporation minute book and a seal.
Preparing a corporate tax return is much more complicated than filing a personal tax return. You may need a tax professional to complete all of the paperwork properly. Corporate tax preparation is more expensive than a personal tax return

Pros:

Easy and inexpensive to register
You do need to get a business number to register for GST
The income you earn as a sole proprietor is considered your income and must be reported on your personal tax return.
Can claim expense as to reduce your income. This would include office expenses as well as the percentage of your home expenses used for your business.
If you have business losses, you can also deduct them against other income on your personal tax return.

Cons:

Your income tax rate increases as you earn more.
Fix fiscal year end December 31.
Owner is responsible for all law suits and liability.
Some companies may not grant contracts to sole proprietors.

For more information about business, please see
http://www.cra-arc.gc.ca/tx/bsnss/menu-eng.html.

I work part-time from home for a small business and I have a part-time job. I contributed to the CPP from the income I earned from my job. However, because I have income that I earned working from home I have been told that I am required to pay more into CPP even though I earned less than $10,000.

Do I have to pay this additional amount, even though I made a relatively small amount of income for the year?

Cindy D.

Thank you for your question Cindy.

Canada Pension Plan (CPP) premiums are paid based on your total employment income. You do not pay any premiums on the first $3,500 of income. Your employer will withhold premiums from every pay on your behalf and they are required to match the withholding when they remit it to the government.

If you are self-employed or do contract work, you are still responsible for remitting your CPP premiums, on this employment income. Also, you are required to pay the employer and employee portion.

The Schedule 8 - CPP Contributions on Self-Employment and Other Earnings; is used to calculate the CPP premiums. It will take into account all of your employment income and credit any premiums reported on your T4. The final amount will be a required payment and will make up part of your balance owing to the Canada Revenue Agency or reduce your refund.

[Did you have a positive tax experience this year?]

Regardless of how your taxes were prepared, we would like to hear all about it.

Maybe you got back a refund big enough to go on a cruise. Or maybe you expected to pay a hefty tax bill this year and instead received a refund and used the money to pay off your credit cards. Whatever the story - we'd love to hear it.

We have three Visa Gift Cards valued at $100 each to give away to readers. Send us your stories and you may be featured in an upcoming issue of Insight.

To enter your submission:

Please limit your story to 300 words or less and send your submission, name and email address by July 1st, 2009 to the Insight Editor;

Insight_editor@hrblock.ca

If your story is selected, we'll contact you to get your mailing information.

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