Frequently Asked Questions About Tax

Frequently Asked Questions About Tax


Corporate Accounting and Tax Vernon BC

Taxes and tax laws leave most people confused, as a result, many people don’t take advantage of tax benefits. If you have questions about tax but find answers difficult to come by, Clark Robinson Chartered Professional Accountants understands the stress that you may feel due to the lack of information. To ensure you have all your doubts cleared, we have answered some of the most frequently asked questions about tax.

1. I use my vehicle for business purposes; can I deduct my vehicle expenses against my business income?

The short answer to this question is ‘yes,’ but calculating and supporting such a claim is not easy. You will first need to keep a mileage log, starting with your vehicle’s opening odometer reading. As the year progresses, you will keep track of each business trip driven for business purposes by logging the date, destination, number of kilometers driven and the purpose of the trip. At the end of the year, take your vehicle’s odometer reading. Dividing your business kilometers with your total kilometers driven will determine the business use percentage of your vehicle.

You can then apply this percentage to the vehicle expenses incurred throughout the year to assess your vehicle expense claim. Make sure to keep your receipts for fuel, repairs and maintenance, finance interest and insurance. You can also claim the depreciation of your vehicle at prescribed depreciation rates, so make sure you have the documentation to support the value of your vehicle from the moment you start using your vehicle for business purposes.

2. I’m missing some of my tax slips, how can I retrieve them?

There are many ways you can retrieve missing slips. First, you can contact the issuer of your missing slips and request duplicates be provided to you. Second, you can contact the Canada Revenue Agency’s personal income tax inquiries department at 1-800-959-8281 and request the missing slips from an agent. Third, you can log on to your Canada Revenue Agency My Account and print the missing tax slips. Fourth, if you have an accountant who is authorized to access your Canada Revenue Agency personal tax account, your accountant can retrieve your missing slips.

In practice, we frequently compare our client’s tax slips with the tax slips on file with Canada Revenue Agency to ensure completeness.

3. Should I contribute to a Registered Retirement Savings Plan (RRSP)?

The answer to this question depends on several factors. When you contribute to an RRSP, you can deduct your contributions in a year against the income on your personal tax return. The investment returns inside your RRSP are not taxed, but any withdrawals are considered income to you and taxed at your marginal tax rates. There are tax implications when an individual turns seventy-one years old.
When determining if contributing to an RRSP makes sense for an individual, we look at the following factors:
a. Is there RRSP contribution room? 
RRSP contributions are limited by the amount of RRSP contribution rooms available. There are penalties and interest implications for over contributions.
b. What personal income tax bracket will an RRSP contribution be deducted in? 
The higher the tax bracket an individual is in, the greater the tax savings each dollar of RRSP contribution will generate. 
c. What type of investments will you be investing your RRSP contributions in?
Not all investments are eligible to be held under an RRSP, so if you are looking to invest in an ineligible investment, then an RRSP contribution won’t be an option. From the eligible RRSP investments, not all are recommended. As RRSP withdrawals are treated as income on your personal tax return, this means that profits are fully taxed over time. Therefore, interest-bearing investments are recommended as an RRSP investment over other options.

4. Should I incorporate my business?

There are many tax and non-tax related reasons to incorporate a business. A few reasons are as follows:
a. Limited liability: Shareholders are only liable for the amount invested in the corporation, meaning other personal assets are protected from lawsuits and/or creditors of the corporation. However, there are some situations which may circumvent the advantage of limited liability, such as personal guarantees on bank financing or director liability with Canada Revenue Agency trust funds. 
b. Lower tax rates on active business income under $500,000 compared to personal income tax rates: When your business is generating more net income than what you consume personally, it makes sense to incorporate, so that excess earnings are taxed at lower corporate rates rather than higher personal income tax rates. Lower corporate tax rates also allow corporations to accumulate net assets faster due to higher after tax earnings. 
c. Ability to access more benefits: Corporations can generate more benefits and wealth through certain structures like private service health plans or individual pension plans.

5. How long do I need to keep my records for?

The Canada Revenue Agency requires that you hold on to your tax returns and supporting records for six years. Supporting records includes accounting records, expense receipts, sales invoices, bank statements, cancelled cheques, deposit books, or any other document necessary to support a claim.

If you have any more tax-related questions, reach out to Clark Robinson Chartered Professional Accountants. As a chartered professional accounting firm in Vernon, BC, we ensure you make the most out of the current tax laws and help you plan for future tax situations.
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