One of the most common calls we service at Agustus are questions surrounding filing a proprietorship tax return for the first time. A proprietorship in this case is any individual who hasn’t incorporated a company and is earning income. This can include anyone with a salaried job that is making income on the side like gigs from music, selling art, writing etc. which is what I’ve been noticing with many people who continue to pursue their passions while they work to make a living. Most firms charge about $400-500 to file a proprietorship return (not counting bookkeeping costs) and with one or two calls with Agustus, we can educate you to do it yourself, confidently.
I have summarized the most common questions and answers in this article.
- Taxes payable are due on April 30th following the year end just like everyone else. There is some confusion in that as a proprietor, your tax return is not due until June 15th but taxes payable are due April 30th. The benefit of a later filed return is minimal as you have to calculate your taxes owing on April 30th regardless. I often advise people to file the return on April 30th as most of the work to file has already been done.
- Don’t forget to include home office expenses. These expenses are often overlooked for first time business filers. The best way to see which costs should be included would be to download a form called T2125 and look at part 7 to get a sense of which costs are allowed. As per one of my previous articles, pigs get fat and hogs get slaughtered so try to be reasonable in your claim. If you’re unsure of what is reasonable call Agustus.
- With the new tax on split income rules (TOSI) and previous “kiddie tax” rules, most people think you can’t deduct income to children or spouses. This is not true. You are allowed to deduct income if the child or spouse performs services for the business and the income is included in their tax return. Evidence of the work and comparative amounts to outside contractors is needed if CRA decides to look into it. Allocating income is severely impaired with the rules noted above. I’ve had many calls explaining the nuances between the two to educate callers on what to include and how much to include.
- Tracking vehicle expenses: I wrote an article for commissioned salespersons on the best apps to use. Vehicle costs are the out of pocket costs used to operate the vehicle multiplied by the percentage you use the vehicle for business purposes. I use MileIQ to track my business and personal mileage. I strongly encourage to start using it as soon as you start your business and not in year 2 after filing your first return as CRA often asks for the mileage log and in the absence of one, your deductions are greatly reduced. Use chart A from the T2125 to get a sense of which costs should be included
- Get organized: the best thing you can do for yourself is to buy an accordian style file folder and title each slot based on the expenses in the T2125 from (2) and (4) above for the purposes of storing the receipts in an orderly manner if you get audited by CRA. It will save you hours of time as opposed to stuffing them in one box and paying someone to sort it out.
In case it’s not obvious, the first call to Agustus should happen when you decide to go into business for yourself and not in March or April after the first year of operations. This is because the organization needed in (5) and the identification of expenses (e.g. from (2) and (4) above) are identified earlier on so that when you spend money on something, you will know that there’s a potential to deduct them.