Now that everybody has filed (or should have filed) their 2013 personal income taxes, it’s time to start thinking about 2014’s tax filing season.
Rather than leaving the accounting to the last minute, there are steps owners of small- and medium-sized transportation companies can take now and throughout the year to ensure that they get into (and remain in) Canada Revenue Agency’s good books.
Pay people appropriately
The Canada Revenue Agency allows individuals who run a business to pay reasonable salaries to family members. Keep in the mind the following rules of thumb:
- Any salary paid must be reasonable given the services performed. For example, if your spouse does the bookkeeping and manages the office, the salary you pay must be in line with what it would cost you if you were to hire a third party (employee). If you have teenagers who help in the business, minimum wage would be very reasonable.
- A record should be kept of the time actually spent and the services performed. You can do this by keeping time-sheets for your family members.
- Whenever you pay salaries to your spouse or children, ensure the withholding for income tax, CPP and EI (where an exemption is not available) is remitted as required. This is reported on T4 Slips, and is due February of each year.
If your trucking company employs independent owner/operators, ensure you meet CRA’s relevant tests regarding whether you have employees or independent contractors. Realize the distinction between these two categories of service providers creates significant consequences for both the business owner and service provider in a number of areas such as employment legislation, wrongful dismissal actions, and contractual obligations, EI, CPP and income tax. CRA is rigorous in verifying the type of relationship which exists. For help determining employment status click here.
It is a very good idea from a cash flow and taxation perspective to buy capital assets (including trucking and office equipment) right before the end of your fiscal year. For any capital assets acquired in and used before year’s end, you can claim one-half of the usual Capital Cost Allowance (CCA).
Keep all your receipts for all your preventative maintenance, meal purchases and other business expenses. Remember, any expense incurred to earn income is allowed as an expense deduction for tax purposes. If you have your receipts organized and the bookkeeping prepared (preliminary financial statements), the cost of your accounting fees should be minimized tremendously.
If you are incorporated, establish your salary/dividend mix from the corporation. As an incorporated business, you also need to ensure you clearly separate your personal expenses from the corporation. If you end up using your own funds for a purchase which was for your trucking business, a record of the transaction needs to be kept and documented showing the transaction details, justification and expense reimbursement.
If you use your office space in your home for your business, whether it is a sole proprietorship, partnership or corporation, you can claim a portion of the household expenses as a business expense. Those expenses can include rent, mortgage interest, property taxes, utilities (such as gas, water and hydro), home insurance, and general repairs and maintenance. Please note that you are limited in the amount you can charge—which is based on CRA’s formula. It is proportionate to the size of the home office relative to overall size of your total home.
Knowing what is going on
Prepare a simple profit-loss operating budget for your fiscal year. You can setup a basic spreadsheet and budget for your top operating costs such as fuel, wages, tires and preventative maintenance. On a monthly (or even a quarterly) basis, you should see how you are performing against your budget.
The purpose of a budget is to act as a control, and show you areas where the costs are increasing each year and areas where you can try to minimize your costs. From a tax perspective, this will ensure you capture all your operating costs, and allow you to plan better as well.
Also, consider taking seminars or one day courses, and think about signing your employees up for some too. Seminars and courses which help the business owner and/or its employees run the business more efficiently are valid, deductable business expenses. Examples of useful courses include ones which teach Microsoft Office programs or business leadership concepts.
One last thing. Being honest and trustworthy when it comes to declaring your business expenses and calculating your business tax returns can give you a peace of mind and allow you to focus on the operational and customer side of your trucking business.
Jag Budwa is a Certified General Accountant with over 15 years of experience in accounting, taxation, and financial analysis. He is also principal of JBTax, a boutique accounting firm that serves clients in the trucking and transportation, taxi cab and restaurant franchise sectors.
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