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6 Deductible Expenses That Commission Employees Should Claim

Are you a commission employee? If so, you may be surprised with some of the expenses that you can claim when it comes time to file your taxes. Commission employees have more freedom to claim expenses than other employees, who may find their options rather limited when it comes to what they can claim as a business expense. If you intend to claim a business expense as a commission employee, you may want ensure you meet the CRA’s criteria to what constitutes a commission employee. Commission employees, as defined by the CRA will need to (as specified in their employment contract) pay for their own expenses, be required to work away from their employers place of business, and receive their pay in whole or in part by the commission earned by the business they conduct. If you feel that you meet the following criteria, you will want to consider having your employer prepare and provide you with a T2200 form, also known Declaration of Conditions of Employment form. Doing so will ensure that your employer recognises and vouches that any applicable business expenses you incur are legitimate and may be claimed. It is imperative that you retain a copy of this form, as well as other documentation recording expenses incurred while conducting business. Should CRA deem audit to be necessary, they will require your copy of the form, as well as proof of the expenses you claimed in order ensure that your claims are both legitimate and accurate.

With this being said, if you consider yourself a commission employee and meet the criteria set out by CRA, you should consider claiming the following expenses if you not already doing so.

6: Office Rent and Home Office Expenses

Expenses relating to either a rented office space or even home office are considered by CRA to be business expenses that you may claim. It is very important to understand that CRA treats these as two very different expenses, with two very separate rules on how they may be claimed. If you make use of a rented office space, make sure to consider a claim. If you pay for the rental fees yourself, you should have no problem in claiming them as an expense. However, if your employer pays for your expense, you will want check with your employer, and find out if they consider it a business expense on their part, or simply include it as part of your payment for the services you provide. If your employer includes these rental fees as part of your income, you should consider making a claim for a business expense.

If you have a home office, you should make yourself aware of the conditions that must be met before it can be claimed as a business expense. Firstly, any space in your home you wish to use as an office space should be designated for business purposes. Additionally, it is expected that you will spend a minimum of 50% of your business time within this space. If your home office meets this criteria, you will want to consider claiming a portion of your housing costs, such as heating, electricity, insurance, and even property taxes as a business expense. If you live in a rental property, a portion of any rental costs and maintenance fees may be considered a business expense. The recommended way to calculate the portion of costs you intend to claim is to divide the area you have designated to be your workspace by total area of finished rooms in your residence. Maintenance costs may also be claimed, but it would be best to limit any maintenance claims to work that is done within the work space.

When you are ready to file your taxes, it’s important to note that these expenses can only be used to deduct taxes that were contributed from business activities conducted within these workspaces. If you are finding that your claim exceeds the amount of taxes that you can deduct, don’t worry: you may be able to carry the expenses forward and use them next year.

5: Electronic Office Equipment

Often overlooked, many people don’t realize that they can claim a portion expenses incurred from electronic office equipment. If used for business, you can claim lease costs as an expense. If you made the decision to purchase your own equipment, you can make a Capital Cost Allowance claim for the loss of value as your equipment depreciates. The rules when it comes to assessing the depreciation of your equipment are more complicated than other claims you may make, so it may be best to consult your accounting professional on how to properly asses these sorts of claims. Equipment that falls into this category include computers, cell phones, printers, fax machines, and photocopiers. Cell phones in particular have some additional rules you should be aware of. While costs pertaining to licencing or connecting a cell phone to a network cannot be claimed, you may make a claim for costs incurred from calls that are business related. As with claiming an expense for the use of office spaces, you will want to ensure that any expenses claimed from electronic equipment are only used to deduct taxes paid towards income earned from the equipment you are claiming.

4: Food, Beverages, and Entertainment

Many business professionals put a lot of effort into ensuring that their clients feel valued, and because of this many consider entertaining clients to be an essential part of earning their income. CRA therefore considers many costs incurred from entertaining clients to be business expenses. Common expenses that are claimed pertaining to client entertainment include ticket or entrance fees to events, food and beverages, and room rentals. You may also claim costs regarding food or drink that you have purchased, given that the purchase was made whilst conducting business. As with most business expenses, certain circumstances apply for these purchases to be applicable. For example, if you are spending over 12 consecutive hours conducting your business, and are in another municipality/metropolitan area, you can claim food and drink as a travel expense. This rule also applies to food and drink purchased on airplanes, trains, or busses, given that the cost of the meals were not included in the ticket price.

CRA allows you to claim 50% of the costs that you incurred whilst entertaining clients, or purchasing meals.

3: Vehicle Expenses

While this may be an obvious expense for most, you may not be aware of all of the vehicle costs that may be counted as a business expense. If the use of a vehicle is essential for you to earn your income, you will want to consider claiming a portion of your vehicle expenses. In addition to fuel costs, maintenance costs, licencing fees, registration fees, and even insurance costs may all apply as business expenses, and may be claimed. Other expenses that may apply, and that you may want to consider claiming include both leasing fees, and interest paid on car loans. It is important to note that costs pertaining to vehicle use can only be claimed if they relate to reasonable business use. If you intend to claim costs regarding the use of your vehicle, you will want keep organized notes describing when the vehicle was used, how it was used, where you traveled, and the distance driven. This is particularly important if you use the vehicle for personal use as well. CRA expects that you make a reasonable assessment of what portion of your vehicle costs were incurred in both business and personal use, and separate the two when making a claim.

It is important to note that commuting to and from your place of employment is not considered a business expense, and that costs incurred whilst doing so should not be claimed.

2: Client Gifts, Business Cards, and Advertisements

Promoting yourself as a commission employee and business professional can be a vital part of how you conduct business, so it should come as no surprise that these are considered a business expense by CRA. Ensure that you retain any receipts for business cards you have printed, as well as any invoices or receipts that you received regarding advertisements that you purchased to help promote yourself as a business professional.

Gifts to clients are an expense you may have overlooked. They can be an important part of promoting yourself as a professional, and may be an expense that easily adds up. Clients like knowing that you care about them, and are more likely to conduct future business and offer referrals if they know that they are respected and valued. If you purchase items for a client, whether it’s cards, Christmas gifts, or an out of the blue showing of gratitude for their continued business, make sure that you retain all receipts to make a claim when it comes time to file your taxes.

1: Training Costs

Many professionals are constantly looking to improve their skills and qualifications in order to improve the level of service they can offer their clients and further their career. Additional training is an essential activity for many commission employees, and is a good way to retain a competitive edge and grow a client base. Considering this, it makes sense that fees from training courses are considered a business expense. If you are considering claiming the cost of a training course or seminar, you will want to make sure that it is specific to improving or maintaining skills or qualifications that you already possess, and that these skills or qualifications are specific to improving how you conduct business.

Unfortunately, CRA does not allow you to claim every training course as an expense. Courses that earn you credits towards a diploma, degree, or certificate cannot be counted as a business expense. Costs from such courses may be seen by CRA as tuition costs, which are still tax deductible. CRA may also be hesitant to allow you to claim a training session or course as an expense if they feel that the cost was too high, and did not warrant the level of service provided.

When filing taxes, we would like to stress the importance of keeping thorough and organized records of all expenses that you intend claim, and that you separate personal and business expenses. You will also want to ensure that you retain a copy of the T2200 form you received from your employer. Should CRA decide to select you for an audit, your records will be an invaluable asset in protecting you and your reputation as a business professional. Most business expenses can be claimed on a T777 Statement of Employment Expenses form. If you are unsure whether or not an expense is appropriate to claim as a business expense, talk to your accounting professional. We are here to help and assist you with these matters, and can help you maximise your return and grow

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There are some OLD tax saving ideas which are really great to use and should be taken advantage of to drop taxable income. Some of these ideas we are quite familiar with but do not always take full advantage of.

RRSP's can be purchased until March 2, 2015 and can save you quite a bit of money especially if you are in the higher tax brackets. Then when you retire and are in the lower tax bracket it is a good way to pay yourself with lower tax. IF you find yourself still in the higher tax bracket when you retire, come to talk to us as we offer great ideas of what to do with your RRSP contributions after age 65 but before 70 in order to withdraw RRSP income and not lose your old age pension due to clawback.

TSFA's are also great ideas of saving money, they do not reduce your taxable income the same way RRSP's do. But they are a good way to save and the interest from these are tax free. If you need more information on TSFA's come talk to us, we are here to help you.

A NEW great tax credit introduced for this year that you should look into is called FAMILY TAX CUT, The October 30, 2014 announcement included a proposal to introduce the Family Tax Cut, a new non-refundable tax credit of up to $2,000 for eligible couples with minor children. Basically you can now income split up to $50,000 with your spouse, provided you have minor children. This is very advantageous for the family where the income levels between spouses are great. This is definitely something to check out if you fall into this criteria.

We are here to help, just either give us a call and/or fill out our form online.

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The Importance of reporting ALL income from information slips

This penalty consists of a 10% Federal, and 10% Provincial amounts. Whereas some penalties are applied against the uncalculated tax, this penalty is applied to the unreported income. If you voluntarily tell CRA about an amount you forgot to report, they may waive this penalty.

For Example, John filed his 2008 tax return early and hadn't received all of his T slips yet. After he filed, he received a T5 slip reporting $3.50 in interest income and didn't bother to request an adjustment because he thought the amount was trivial. The CRA then reassessed his return later to include the unreported income with no further issues. When John filed his tax return in 2010 however, he had forgotten about and then failed to report $2000 of RRSP monies he had withdrawn for his RRSP when he was tight for cash earlier in the year. When the CRA reassessed his 2010 return to include the unreported income, John was charged a $400.00 penalty, $200.00 Federal and $200.00 Provincial for repeated failure to report income plus interest.This effectively taxed his current income at over 60% due to his negligence in reporting $3.50 two years earlier! Another scarier way to look at it, is tax at over 10,000% on the original $3.50!

The moral of the story is that no matter how trivial, always report income included on income tax information slips.

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Foreign Asset Reporting and the Extreme Costs of Non-Compliance

Unfortunately the penalties for not completing this form are extreme as one large Canadian Corporation group found recently when a judge ruled against the Asper group of companies. Penalties for non filing were enforced even though the company reported all the income from these investments properly.

So what is this form and why is it required? As has been reported in the press both here in Canada and south of the border, governments are concerned with offshore money escaping taxes in the home country. As a resident of Canada and most other western countries, you are taxed on world wide income. This form is simply to track those assets offshore which have the potential to earn income and otherwise escape tax if not reported.

Canada Revenue Agency requires Canadian resident taxpayers to report specified foreign property with an aggregate cost in excess of $100,000 at any time during the year.

Specified properties include the following:

  • Foreign bank accounts
  • Interest in foreign trusts (mutual funds)
  • Foreign bonds, treasury bills and other debt instruments
  • Shares in foreign corporations
  • Real estate
  • Other income earning property

Excluded properties include:

  • Property used to carry on an active business
  • Assets held in Canadian registered plans such as RRSP’s
  • Property held primarily for personal use such as vacation property, art, and antiques

If you have a large diversified investment portfolio, you should speak with your investment advisor to determine whether or not you might fall into the reportable categories.

You also need to determine whether or not you, your spouse or both own a property as individuals report separately and the for jointly-owned property, it is the contributed amount that is the determining factor.

Even if you are not required to file a personal tax return, you will be required to file a T1135 if your properties cross the threshold.

Foreign property does not include a U.S. IRA

If you rent out your foreign condo, that you also use for personal use, you may be required to report.

You are not required to report US securities if they are owned within a Canadian mutual fund.

If you inherited a property, your cost base is the fair market value at the time of inheritance.

Penalties are harsh. Penalties begin at $25 per day to a maximum of $2,500. If you knowingly fail to file or fail to file through gross negligence, penalties are $500 per month for the first 24 months to a maximum of $12,000. More severe penalties exist for false statements and omissions.

For further information, please visit CRA’s page for completing the T1135 including frequently asked questions.

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