Daniel Toma, chartered accountant, gave an insightful and very useful talk about Tax Advice for Physiotherapists at an inservice in the GTA. This advice relates primarily to self-employed practitioners. Below is a recording of his talk along with a summary.
Books & Records
Credit card statements aren't enough, keep all of your receipts
Track your income
Invoice the clinic(s) you work for
Keep a mileage log if you have a car and use it to commute for work
There are different ways to track your expenses
Freshbooks - easy to use but not the most advanced
“A business that a corporation carries on to provide services to another entity that an officer or employee would usually perform.”
Basically- you are incorporated but are really acting like an employee.
CRA has taken the stance of disallowing expense deductions for the corporation and removing eligibility for the small business deduction. This means a federal corporate tax rate of 28% plus provincial tax of 11.5% = 39.5%
So what does this mean? Going back to our comparison of Contractor vs. Employee, if you are a CONTRACTOR who is INCORPORATED it is ESPECIALLY important not to fulfill an employee-like function.
What Expenses Can you Deduct?
Per CRA, you can deduct any reasonable expenses you incur to earn income.
Expenses you cannot deduct: personal portion of expenses, expenses of a personal nature such as clothing (unless it is mandatory for the job and is unsuitable for daily wear), non-business travel, non-business, meals, tax penalties, “unreasonable” expenses- see CRA website for further detail.
Expenses must usually be exclusively for business, otherwise if a “mixed” business/personal expense is eligible the personal portion must be accounted for.
Note: for employees there are different guidelines (require T2200 signed by employer), less opportunity to claim expenses.
Home Office Expenses
Based on the exclusive office space as a % of the total area of the home.
Can take a % of the following expenses: heat, electricity, insurance, maintenance, mortgage interest (not principal), property tax, other expenses (such as water, painting). Cannot be used to create a loss, will be carried forward.
Expenses which are specifically incurred for business can be 100% deductible, such as your home office printer, supplies, etc.
Beware of taking CCA if it is your principal residence.
There are 2 options:
Full logbook (best method), shows each trip, date, kms in/out, destination, reason for trip. Apply percentage of total kms against all relevant auto costs.
Simplified logbook, use full base year, then three month sample logbook for any year (if within 10% of base year) can be used to extrapolate.
Contrary to what some believe, you should not apply a per kilometer mileage formula for claiming auto expenses for business (applies to employee allowances).
Expenses vs. Capital Assets
Expenses vs. capital asset purchases: expenses are for the current period whereas capital assets have a useful life extending beyond one year and is not intended for sale during the normal course of business.
Capital assets are recorded in your tax return and depreciated over time, whereas expenses are deducted in the current year.
Daniel Toma is a Toronto based Chartered Accountant providing accounting and tax services to small businesses and individuals. Following his experience at a national accounting firm, he established a practice devoted to building solid client relationships and services many clients in the healthcare field. With keen interests in tax planning, entrepreneurship and technology, he transfer these passions to his role by going beyond the numbers when assessing each client situation. What is the best tax strategy to maximize wealth? How can one's business be more profitable? How can technology improve record keeping? Such questions are just the beginning of the process to determine how to optimize a client's situation.
Building strong relationships and helping clients reach their objectives is the cornerstone of his practice. To receive quality professional service at an affordable rate contact him to start a conversation.