Business and Tax Implications of Owning Rental Property
A great many fortunes have been made in real estate. Conversely, as was evidenced in 2008 with the deflation of the housing bubble, many fortunes have also been spectacularly lost. Fortunes aside, owning real estate is one of the best ways to build equity. If you own your home, you are already one step ahead. With rental property, you can further augment your net worth if after investing the necessary down payment the rental income covers and/or exceeds the mortgage payment and related expenses, (Leaving you free to move on to buying your next property). This is not a decision to take lightly as with any investment there are several business and tax factors to consider before taking the plunge:
Employment Insurance for Small Business Owners and Self Employed Individuals
One of the benefits allowed employees working in Canada is that have access to employment insurance. A specific amount is withdrawn from each employees paycheques each pay period along with an employer portion and remitted to Revenue Canada. This entitles them to wage loss replacement, in the event that they are laid off, as well as other benefits. This can be extremely useful in difficult times and has been used by millions of Canadians.
Unfortunately, taxpayers who are considered self employed are not entitled to the same benefits. A self employed individual also includes anyone who owns 40% of a corporation and usually extends to family members of self employed people. By the same token, self employed taxpayers (whether they are sole proprietorships or owners of corporations) are also not required to pay employment insurance (EI) premiums.
Quebec’s Small Business Tax Deduction and How It Relates to Payroll Hours
Revenue Quebec, in the March 2017 budget (or economic plan as they like to call it) decided that a small business wasn’t a small business for the purposes of the tax deduction, unless a minimum number of payroll hours was worked by employees of the business. Initially they had wanted to impose a minimum number of 3 full time employees to qualify for the deduction, however, after realizing that many businesses had several part time employees during the year, they changed the requirement to a minimum number of hours worked to 5,500 hours per year. This could be a combination of full time and part time employees. Consequently, many businesses that had qualified for the small business tax rate were no longer eligible.
9 Tax Facts about Charitable Donations for Individuals and Small Business Owners
Every good act is charity. A man's true wealth hereafter is the good that he does in this world to his fellows. - Moliere. Unfortunately, the Canada Revenue Agency (CRA) has specific criteria for what qualifies as a charitable donation and not all good acts qualify for a tax benefit. Growing a moustache (although not without its costs) or running a marathon, are generally not considered to be a charitable donations according to the tax code. Luckily there are a multitude of charitable organizations that do qualify the donors to receive a tax credit for their donations. Some facts about the tax credit are discussed below:
What Is a Capital Dividend and How Does It Benefit Your Corporation
When an individual sells some property, investments or other assets (perhaps you have a Picasso lying around that's appreciated in value), only 50% of the gain is subject to tax. For example if you sell a rental property and realize a gain, after brokerage and expenses, of $100,000, only $50,000 will be taxable. (The actual tax that you pay will depend on your marginal tax rate at the time). The other 50% of the capital gain is a non taxable gain. For a corporation, however, this distinction is a little more complex. In order to allow corporations the same benefit as individuals with respect to capital gains and losses, the 50% non taxable portion of the gain on a corporate capital transaction is allocated to what is referred to as a Capital Dividend Account or CDA. The balance in the CDA, which is a cumulative balance over the lifetime of a corporation, is then available to the shareholders on a tax free basis.
Understanding Payroll Deductions: Personal Income Tax Rates, CPP/QPP, EI and Basic Exemption
The automation of the tax preparation and filing process has been a boon to individuals and tax preparers alike. Gone are the days of struggling to find the right box on the return, adding everything up 5 times and still getting different results, and hoping that the CRA can read your chicken scrawl. Present day tax software not only guides you through every step of the process, it also helps to optimize your allocations thereby reducing your taxes payable. There is however at least one downside to automation: Since we are more removed from the actual calculations, our understanding of our tax situation is somewhat diminished. We have an idea of what we expect to pay, which we can see every week on our paycheques (or for self employed individuals, the breathtaking moment when we see the final result on our tax return), but often we are not really sure how these amounts are derived. Below is a discussion of the tax rates, deductions and maximums to improve our comprehension of this somewhat complex topic:
Quebec Parental Benefits for Self Employed Workers
In Canada parental benefits are administered by Service Canada. Since they fall under the EI program, self employed workers must opt in tothe EI plan for self employed individuals to receive benefits. In Quebec however, unlike the rest of Canada (a common theme with Quebec), parental benefits are administered by the Quebec Parental Insurance Plan (QPIP), which does not specifically require opt in. Instead all workers in Quebec whether self employed or employees are required to pay premiums, based (similar to QPP) on their insurable earnings. For the self employed, premiums are payable at a rate of 0.86% upto maximum insurable earnings of $62,000, and are reflected in your annual tax return. As such all workers in Quebec are eligible for Parental Benefits.
What to Do When your Tax Obligations are Overdue
What Happened to Quebec Property Tax Refund?/ Preparing the RL31 and the solidarity tax credit
UPDATE: Beginning with the year ended December 31, 2015 landlords are required to provide tenants with an RL 31 slip which indicates the name of the tenant, the number of tenants at a particular address as well as the address of the tenant. Each individual listed on the lease must be issued an RL 31. Deadline for filing the form is February 28th following the year of residence and is only issued to tenants living at a particular dwelling December 31, 2019. The forms can be filed online through Revenue Quebec and is a fairly straightforward process. Failure to file the form by the landlord can result in a penalty. The form is then required to be used by the tenant to claim the portion of the solidarity tax credit relating to residence.
For Quebec taxpayers who have been trying to locate their RL-4 slips, the slip that your landlord usually provides, or the part on the tax forms or software where you would enter your property taxes (Schedule B), be advised that as of 2011, that this is no longer a specific tax credit. Prior to 2011, both property owners and renters could claim a portion of property taxes paid. This reduced income taxes payable for taxpayers whose total family income was under approximately $50k
Invest in RRSPs or Repay your Mortgage?
Last Minute Guidance and Information for Tax Filers
What is the Hiring Credit for Small Business?
Recently, a client received a notice from the CRA indicating that he had received a credit of $265. The explanation was simply that it was a hiring credit. Upon further research, we determined that the credit was a result of the provision in the 2011 budget that gave a credit to small business for hiring additional employees.
To be eligible for the credit, small businesses are not required to prepare any additional reporting. The small business hiring credit is simply calculated based on the increase in employment insurance (EI) premiums paid in 2011 over 2010. The maximum amount that any business is eligible to receive is $1,000.
Since the calculation is based on amounts reported on your T4 slips for 2010 and 2011, you are only eligible if the slips have been filed for these calendar years.
It appears that the amount of the credit is 100% of the excess of 2011 EI premiums over the 2010 EI premiums, up to aforementioned limit of $1,000.
The credit will not actually be paid out immediately, but applied to your payroll account.
New businesses (like my client) will receive the credit. Their 2010 EI premiums will be calculated at $0.
Note that since the EI credit should reduce your payroll expense, it will reduce your business expense and by extension, increase profits. The journal entry is as follows:
Dr. Payroll (EI) Liability
Cr. Payroll Expense
Once you receive your payroll statement from Revenue Canada indicating the amount of the credit, you may reduce the payroll liability owing to them by the same amount. You cannot, however, estimate the amount of the credit before you have received notification from Revenue Canada.
Is Facebook’s Valuation Justified? A Comparison of Key Financial Metrics to Apple and Google
The recent release of Facebook's S-1, the financial filings that are required to be publicly available prior to filing an IPO, has created a media frenzy. The report has been dissected and analyzed extensively, financial news networks can’t seem to stop talking about it and it seems that people who have never heard of an IPO are discussing it, fittingly, on their Facebook pages. The most controversial issue, of course, is whether Facebook is actually worth $100 Billion.
Although Facebook is unique in its global reach and ubiquity, the starting point for any valuation is to compare it with similar businesses. I have chosen Apple and Google, given the similarity of their business models and their respective global dominance, to compare certain key metrics:
How to Update Wave Accounting for the 2012 QST Rate Increase
As of January 1st, 2012 the Quebec Sales Tax (QST Rate) which had gone up from 7.5% to 8.5% on January 1, 2011 will now increase to 9.5%. The effective sales tax in Quebec will go up from 13.925% to 14.975%. Since QST is calculated on the net amount + GST, the rate is not 14.5% but 14.975% . In other words the effective QST rate is 9.75%. Business owners will need to update their invoicing and accounting systems accordingly to ensure that the rate is properly reflected.
If you are using Wave Accounting, the update to the rates is fairly straightforward, with one little quirk. Since Wave, unlike Quickbooks, does not allow for the QST to be calculated on the GST, the effective rate has to entered manually. This is done as follows:
To update Quickbooks for the tax rate increase, please see “Updating Quickbooks for the 2011 QST Increase”. The procedure is essentially identical except for rates.
