21 Oct Important Tax Tips For Businesses
Owning a business, big or small, and having to think about tax time can be very daunting for most business owners. It’s important to know what you can expense/deduct or what Input Tax Credits you are eligible for. Keeping a good record of expenses is a full time process and making a list of everything you need for tax time is very important in order to maximize your tax return so here are some tax tips that can help.
Just a reminder, these tax tips that we are sharing with you is general information and not advice. We would love to further discuss your business and how these tax tips can help you and your business. Feel free to reach out to us on the Contact Us page of our website.
1. TAX TIPS ON IMPORTED GOODS
If your business imports goods for consumption, use or supply and is not on the list of “non-taxable importation, you are entitled to Input Tax Credits (ITCs) for the GST paid on importation. There may be slight differences in what is required for documentation for this type of ITC, therefore, it is very important to ensure that you have the correct customs import documentation in the event of a CRA review or audit.
If you use a customs broker service, they may request you to pay for the sales tax on importation yourself, or they will pay for it and request reimbursement from you.
In the example below, there are different fees related to importation that are included in this invoice. The total for this invoice is $1783.75. $1608.75 (90.18% of the total) are GST/HST charges that would be an ITC that can be claimed on a GST/HST sales tax filing.
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2. DO I NEED TO CHARGE GST/HST TO MY NON-CANADIAN CUSTOMERS?
Generally speaking you do not have to charge GST/HST to foreign clients. Goods that are exported outside of Canada and services rendered to non-residents are zero-rated under the GST/HST rule. Meaning they are taxable at a rate of 0%.
However there are exceptions to the rule. Depending on your business, we can help you to determine whether or not you should be charging GST/HST to your foreign clients.
3. TAX TIPS ON COMPANY MEALS AND ENTERTAINMENT
Sometimes companies like to reward or celebrate with their staff with a meal or some form of entertainment. Expenses like these are 50% deductible. You are limited to six events per year (such as an office party) where you can invite all of your employees from a particular location. Not all employees have to attend.
Entertainment expenses also include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges and room rentals.
There are some limits and special rules that apply for meals when you travel or go to a convention, conference etc. so it is important to understand what you are eligible to claim for such events.
4. HOW DO I DEAL WITH GST/HST ON RE-BILLABLE/REIMBURSEMENT EXPENSES?
The answer depends on the situation. Some situations are more complicated than others but here’s a common re-billable situation:
An interior designer has sub-contracted an electrician to install a light fixture. The electrician charged $100 plus 13% HST for a total of $113. The interior designer would then re-bill their client the same amount: $100 expense + 13% HST = $113. The interior designer incurred $13 in HST (which they can claim back) but they also collected $13 in HST when they re-billed the client. Everything would net to zero.
A more complicated situation would be as such:
Let’s say that client of the interior designer is a non-resident of Canada. Normally, they would not charge GST/HST to a foreign client.
In this example, the interior designer incurred $100 expense + 13% HST = $113 from the electrician. The 13% ($13) would be their ITC. When the interior designer re-bills the client, they would charge $113 to the client (no GST or HST since they are not Canadian). The interior designer would claim the $13 ITC but will not collect HST from their client.
I know it may sound complicated but if you want more clarity on your specific situation, one of our tax experts would be happy to help.
5. TAX TIPS ON VEHICLE RELATED EXPENSES
You are allowed to claim back GST or HST on any expenses you incur as ITCs. So if you use Uber, Taxis, Lyft or incur parking and mileage then you are eligible for reimbursements.
Be sure to keep all of your parking receipts but also, check if the parking lot uses a parking application such as “Green P” or “Honk Mobile” (In Toronto). Download the application on your phone and use it to pay for parking. It will be a lot easier for you to track your parking expenses electronically as opposed to saving printed receipts for tax time.
Most parking applications don’t have a separate line item on their receipts for GST/HST. That means that the GST/HST is imbedded in the final cost.
Here’s a quick formula to calculate the HST.
$12.00 * 13 / 113 = $1.38
Employees can claim mileage from their employer and in turn the employer can claim HST ITC for the reimbursement to the employee.
The interior designer’s assistant (employee) requires reimbursement from the interior designer (employer) for 1000 km x $0.59 = $590. The employer can claim an HST ITC equal to $590 x 13/113 = $67.88. The remainder of the payment $590 – $67.88 = $522.12 would be an expense for the business.
TAXI’S, UBER, LYFT EXPENSES
Most taxi’s and ride sharing companies now include the GST/HST as line item in their receipts so you don’t have to calculate the ITC amount yourself.
If you’re only realizing now after reading this blog that there are Input Tax Credits that you haven’t claimed in your past tax returns, well you’re in luck! For most businesses, you can add your previous ITC’s, that occurred no more than 4 years prior, to your next tax filing.
As always, we’d be happy to review your business with you and advise you on what ITC’s your business would be eligible for. We hope that these tax tips will help you get a bigger tax return. Click here to contact us or book an appointment with one of our professionals.
You can also check out what other services we provide. We have a lot more tax tips up our sleeves that we know can help your business.