Category Archives: Self-employment
Am I self-employed or an employee? What can I deduct when I’m self-employed? Am I eligible for EI when I’m self-employed? What about maternity leave when I’m self-employed? Any other questions about self-employment? Let us know!
On November 21, 2018 the Minister of Finance, Bill Morneau, released the Fall Economic Statement.
This Statement included the Accelerated Investment Incentive – which outlined a number of tax changes relating to the capital cost allowance (CCA) system (amortization of assets that may be claimed for income tax purposes).
The Accelerated Investment Incentive was introduced to allow business in Canada to deduct the cost of their investments more quickly – and therefore increasing the attractiveness of making capital investments to improve a business’ efficiency and/or to expand a business’ operations. The intention of the Accelerated Investment Incentive is to enhance the ability of businesses in Canada to compete internationally and is a reaction to the U.S. Government’s Tax Cuts and Jobs Act of 2017.
Significant change #1 – First-year capital cost allowance
Prior to November 21, 2018, only one-half of the allowable CCA could be claimed in most asset classes in the year of acquisition. This was commonly known as the half-year rule.
From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is three times the ‘prior to November 21, 2018 rate’.
January 1, 2024 to December 31, 2027, the half-year rule does not apply in the year of acquisition.
January 1, 2028 and onward, the half-year rule is again applicable in the year of acquisition.
- For those CCA classes for which the half-year rule does not apply the provisions of the Accelerated Investment Incentive allow for the accelerated depreciation of these CCA classes as well.
- After the year of acquisition, the CCA rate will return to the normal declining balance rate for the respective asset class.
Your business purchased $1,000 of equipment and you immediately began using the equipment in the business. For income tax purposes the equipment is added to CCA class 8. The depreciation rate of CCA class 8 is 20%.
Prior to November 21, 2018, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).
From November 21, 2018 to December 31, 2023, your business would claim a $300 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½ *3).
January 1, 2024 to December 31, 2027, your business would claim a $200 deduction for tax purposes in the year of acquisition ($1,000 times 20%).
January 1, 2028 and onward, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).
Significant change #2 – Manufacturing and processing machinery and equipment
From 2016 to November 21, 2018, a previous Ministry of Finance incentive allowed for the addition of manufacturing and processing machinery and equipment to be added to class 53 with an amortization rate of 50% per year on a declining balance basis and with the half-year rule applying in year of acquisition.
Under the Accelerated Investment Incentive:
From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is 100%. The half-year rule does not apply. Therefore, this allows for a full deduction in the year of acquisition.
2024 and 2025 calendar years, the allowable CCA in the year of acquisition is 75%. The half-year rule does not apply. For the remaining years this addition is depreciated at a rate of 50% per year on a declining balance basis in class 53.
2026 and 2027 calendar years, the allowable CCA in the year of acquisition is 55%. The half-year rule does not apply. For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.
2028 onward calendar years, the allowable CCA in the year of acquisition is 15% – as the half-year rule is reintroduced. For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.
Please note: Income Tax Folio S4-F15-C1, Manufacturing and Processing, includes the following discussion of the activities that constitute manufacturing and processing:
“1.2 It may be said, however, that the manufacture of goods normally involves the creation of something (for example, making or assembling machines, clothing, soup) or the shaping, stamping, or forming of an object out of something (for example, making steel rails, wire nails, rubber balls, wood moulding). On the other hand, processing of goods usually refers to a technique of preparation, handling, or other activity designed to effect a physical or chemical change in an article or substance, other than natural growth. Examples of such activities are galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods, and homogenizing and pasteurizing dairy products.
1.3 In Tenneco Canada Inc. v The Queen,  1 CTC 323, 91 DTC 5207, the Federal Court of Appeal indicated that the two tests for determining whether a taxpayer is engaged in processing are:
- whether there is a change in the form, appearance, or other characteristics of the goods subject to the operation; and
- whether the product becomes more marketable.
1.4 The activities of breaking bulk and repackaging for subsequent resale where there is a systematic procedure to make a product more marketable are generally considered to be processing. However, the filling of orders from bulk inventories is not viewed as processing where the activities involved are nothing more than counting or measuring and packaging.”
We are beginning our 2016 personal tax return preparation season tomorrow. Although we very much enjoy assisting our clients with the preparation of their personal tax returns, we work long hours at this time of year to do our best to sure everyone’s personal tax return is accurate and filed on time. If we were super heroes we would be “super-organized” – not as exciting as being invisible, but it enables us to get the job done.
- “When are my taxes due?”
Although most Canadians have been required to file their personal tax return on April 30th each year (or the next business day if April 30th falls on a weekend) since as long as I can remember, we understand the confusion here as our neighbours to the south have a April 15th personal tax return filing deadline.
The filing due date for 2016 personal tax returns is May 1, 2017 (since April 30th falls on a Sunday this year) unless one of the following applies:
- If you or your spouse or common law partner have self-employment business income you have until June 15, 2017 to file your personal tax return.
- If you died last year between November 1st and December 31st, the due date for your final return is six months after the date of death.
- “I am going on vacation until April 25th. Can I bring all of my personal tax information in on April 26th”?
Yes you can bring your information in but we likely won’t have time to complete it until we return from our holidays. See point 10 below.
- “When are my 2016 personal taxes due?”
May 1, 2017, since April 30, 2017 falls on a Sunday, no matter when your filing due date is.
- “How do I pay my tax liability?”
I recommend that clients set the Canada Revenue Agency (CRA) up as a payee in their online banking, using their social insurance number as the account number, and remit a payment this way.
Not everyone participates in online banking. One of our clients enjoys going directly to a CRA office each year and standing in what he calls the “crying and paying line”. There are several other ways to pay the Canada Revenue Agency. Here is a link to other payment options.
- “Do you need all of my tax slips?”
- “My printer is broken.”
We email our clients forms during our personal tax return season that require to be printed, signed and returned. To facilitate this process, now is a good time to give your printer a check-up, replace your printer or find an alternative way to print the documents we send to you. Before you do please see point 8 below.
- “I don’t have any toner for my printer.”
Now is a good time to buy some toner. Before you do please see point 8 below.
- “My scanner is broken.”
In this crazy hi-tech world we live in, perhaps the need to purchase a separate machine to scan documents is over. There are several apps available for your phone that can receive a document, place your signature on the document and return the document. Tiny Scanner and Tiny Scans are two examples of these apps.
- “You look tired. Are you tired?”
- Are you taking a vacation soon?”
Yes on May 2, 2017 and we will be back in the office on May 15, 2017.
Making your Canada Revenue Agency (CRA) payments online is convenient and easy. Payments may be made by: online banking, debit card or credit card.
Visit: Canada.ca/payments for more information.
Are you using Windows XP for your business? Your personal computer?
Microsoft will no longer be providing support for its Windows XP operating system.
“Microsoft has provided support for Windows XP for the past 12 years. But now the time has come for us, along with our hardware and software partners, to invest our resources toward supporting more recent technologies so that we can continue to deliver great new experiences.
As a result, after April 8, 2014, technical assistance for Windows XP will no longer be available, including automatic updates that help protect your PC. Microsoft will also stop providing Microsoft Security Essentials for download on Windows XP on this date. (If you already have Microsoft Security Essentials installed, you will continue to receive antimalware signature updates for a limited time, but this does not mean that your PC will be secure because Microsoft will no longer be providing security updates to help protect your PC.)
If you continue to use Windows XP after support ends, your computer will still work but it might become more vulnerable to security risks and viruses. Also, as more software and hardware manufacturers continue to optimize for more recent versions of Windows, you can expect to encounter greater numbers of apps and devices that do not work with Windows XP.”