Consulting and Independent Contracting:
Tax Tips for Next Year

by Elaine Garnet, CIC-SIG Coordinator

Dear Entrepreneur:

I have posted my taxes and paid the portion of GST that I owe the Government of Canada. Although this article is too late to help you with the past year's taxes, it is just the right time to learn how to do your taxes for this year. 

Heaven knows, I’m not a tax expert, but if you are new to business, these tips might help (or at least start you thinking about) planning for next year. As a sole proprietor, I prepare my own taxes using an off-the-shelf accountant (Quick Tax). If you are incorporated, you will have to hire the real thing. If you are really in the big time, with multiple businesses and money invested here and there, you may also want to hire an accountant.

The GST

You know it and love it. You probably pay some every day. If you are in business and earn more than $30,000 a year, you must register for a business number and collect GST from your clients. I say ‘must’ because I generally obey the rules. There are plenty of consultants out there, though, who are making a bundle and keeping quiet about it. How they get away with it, I don’t know. Anyway, if you have a business number and are collecting GST, the government will faithfully send you a form every year on which you must enter total revenue, total GST collected and the GST paid by your business for goods and services. The difference between ‘collected’ and ‘paid’ will be either a balance to be paid or a refund to be collected. Pray for a refund.

The PST

Most independent writers or contractors aren’t providing a transaction that’s tangible. All my work is carried out digitally. No paper or discs change hands. When I pay PST to purchase an item for the business, I record the amount within the cost of the goods. The PST is an expense for me. I record the GST separately because I track how much I paid and hope desperately for a refund.

Businesses Expenses

If you have a home office, you can claim the business part of your telephone bill, Internet service, insurance, and any maintenance bills. Be sure to include all office supplies, equipment, and expenses such as postage, fax, and courier fees. And don’t forget all those bank fees and interest expenses!

If you buy a computer or office furniture, for example, you must depreciate the cost over time. It makes sense to buy capital equipment (for example, a computer) at the end of the year, so the depreciation will be less. The same applies to a business vehicle.

And here’s a really great tip. Remember when your kid assembled the office furniture, or helped you paint the room, or entered data for you? Pay them a salary, and you can deduct the salary from your income. I checked this out with Canada Revenue Agency (CRA) last year and it’s perfectly above board.

Business-Use-of-Home Expenses

Total all hydro, utility, mortgage interest payments, etc, and apply these to home office expenses. I have eight rooms in my home and use one room that is totally dedicated as office space. Therefore, I take one-eighth of all these expenses and claim them as business use of home expenses. If you prefer, use square footage to calculate the portion claimable.

Vehicle Expenses

Keep careful track of your business mileage throughout the year and take this as a percentage of your car’s total mileage. Parking, gas, oil, maintenance, and insurance are all claimable at that percentage. You can also claim lease payments. Again, if you buy a vehicle, you can depreciate part of the cost over time.

Personal Stuff

All the personal stuff is as straightforward as it always was. Just follow the guide. If you have any questions, don’t call me. I have reached my quota of tax frustration.

Sincerely,

Elaine Garnet
CIC-SIG Coordinator