How do I prepare my personal tax return?
1. Get to know what is new this year. You can visit our blog or CRA’s website.
2. Download and go through the PNC Personal Tax Checklist to ensure you have not missed any deductions or credits.
3. Download and prepare the PNC T2125 Business Worksheet to report all your business income and expenses.
4. Download and prepare the PNC Rental Income Worksheet to report all your rental income and expenses.
5. Contact us if you have any questions.
Should I start with a corporation or be self-employed?
Generally, the advantages for incorporating a business are limited liability for shareholders, tax saving or deferral, succession planning and may qualify for capital gain deduction ($800,000) on shareholder disposition of shares. However, the corporation is subject to more government regulations and requirements, and so more expensive to maintain.
Moreover, losses from incorporation cannot be deducted to shareholder’s personal source of income, while loss from self-employed generally can be used to offset other source of income.
Once incorporated, any difference in paying salary or dividend?
The salary paid out of the corporation can be deductible to the corporation and are earned income for the purposes of calculating RRSP room. A dividend is not earned income for the purposes of making an RRSP contribution.
Although both salary and dividends are taxable in personal level (or in the hand of recipients), dividend generates a dividend tax credit, so the tax saving effect may be a bit different depended on the income and marginal tax rate of recipients and thus professional advice is recommended.
As sole shareholder of the corporation, how do I pay myself a salary?
If you own the corporation over 40 per cent and pays a salary to yourselves, that salary would not be insurable earnings and no EI should be deducted. However, you should remit corporation’s share and your own share of CPP plus the income tax deducted to the CRA.
If you are a new employer, or your Average monthly withholding amount (AMWA) two years ago was less than $15,000, you are a regular remitter and have to remit your deductions on or before the 15th day of the month following the month you made the deductions.
Do I need to keep receipts?
You should keep your receipts and supporting documents for six years. Have the receipts and documents ready in case it is requested by the CRA.
Can I claim an office in my home?
You can deduct expenses for the business use of a work space in your home, as long as you meet one of these conditions:
- it is your principal place of business; or
- you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients.