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Claiming Your Airbnb Income In Canada

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As the sharing economy continues to grow an increasing number of startups are being developed that provide everyday people with the opportunity to increase their income streams. This is causing the average person’s tax return to become much more complicated than it would be with a simple T4 income.

First things first YES you need to claim your AirBNB income. It may be your “fun money” but to the government it’s income and it won’t be fun income if you don’t claim it and the government finds out.

How to Claim This Income

Airbnb income is considered rental income so long as you don’t include meals, personal laundry services, and other tourism services to your guests, in that case, it’s going to be business income.  

If it’s confirmed rental income you need to complete a T776 (Statement of Real Estate Rentals) and declare the income on line 126 of their federal return.

Need Help With Your Bookkeeping? Contact Us Today

 

How To Calculate Your Expenses

The benefit of claiming this income is that unlike T4 income you can claim your expenses to offset the total net income.

The Full Property Is rented

When calculating your expenses you need to make sure that you calculate the correct percentage. You can only claim operating costs for the time your property was generating revenue.

For example: If you rent out your entire place for 165 days of the year (45% of the year) and make a total of $11,000 and over the course of the year the claimable expenses you incur on the property (eg. property taxes, strata fees, insurance) are $15,000, you can only claim 45% of this amount (ie: 165 days worth of expenses) so – $6781. Making your net income $4219. Expenses that relate directly to the rental such as replacing sheets and cleaning fees that you incur over those 165 days are 100% deductible.

Renting Out A Room

If you only rent out a room in your house then things become a little more complex. You need to go a few steps further and separate out the expenses that directly relate to the room you are renting (linen, decorating etc.) and divide them by the percentage of use (as demonstrated above) in addition to calculating your rental operating expenses for the house dividing them by the percentage of the year the room was rented AND then again by the  percentage of the house used to generate income.

For Example: If you rent out a room in your home (¼ of your house) for 200 days of the year and make $10,000,  the claimable expenses for the entire home $12,000 annually and the expenses relating directly to the room were $1500 annually.

You can only claim the following – The operating costs throughout the time you made the income (200 days of costs)  will be $6575 for the entire home. This then needs to be divided by 4 as only ¼ of the home was rented out so $1644 can be claimed.

In addition, you can claim $822 worth of expenses for the $1500 of furniture you purchased that was used for rental purposes 200 days.

What Expenses Can You Claim

The following is a list of expenses that are deductible:

Each can be explored in more detail by visiting the link.

If you are unsure of what you should and shouldn’t claim we recommend filing your return with a tax professional. What may feel like a saving by not paying for advice now could cost you later if you are audited and forced to pay penalties and interest on overdue funds.

Need Help With Your Bookkeeping? Contact Us Today

Homeroom E-Return: “I am digitally illiterate. How does the e-signature work?”

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Forget that pen. Unplug that printer. Signing documents just got hella easier and funner. Let’s jump right in!

Now that you know how to securely submit your online tax documentation, how do you sign all the paper we email your way without turning on your printer?

Each year, we get more advanced and efficient with everything we do. This year, we will be using the user-friendly HelloSign app to send tax returns securely.

E-Signature Is The Way

The electronic signature allows you to sign your tax return draft from anywhere! The Canada Revenue Agency (CRA) accepts personalized electronic signatures. Save the paper err day, all day!

How does the e-signature work?

  1. Go to your inbox and open the email from Homeroom Team.
  2. Click on the button “Review & Sign.”
  3. Read the document carefully to ensure everything OK eg your address, full name, etc.
  4. Tap “Start” (top right) to begin signing.
  5. Click on the area on your screen that is highlighted with a tiny red arrow pointing down to begin to sign.
    1. Mobile Phone: Use tip of your finger to sign your name.
    2. Computer: Use your mouse to sign * Make sure you are using personalized signature NOT the typed-out version.
  6. Click FINISH (top right corner) when you are done.
  7. You will receive a copy via email. You can securely save your document online FREE with DocuSign.

If you experience any issues or get stuck along the way, give us a call at 604-739-9536.

Next week’s blog post will highlight the turnaround of filing your tax return!

 

Homeroom E-Return: “My tax return is too complex. How will I properly explain my situation?”

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Is your tricky tax situation keeping you in the dark?  | Photo by Alexas_Fotos via Pixabay

 

By now, you’re probably feeling a bit more keen to dip your toes into the world of online tax filing, and save yourself time and money!

But what about that extra self-employment income you earned mid-year after your messy divorce? Or that time during the fall when you took a 3-week contract at an office after quitting your full-time job at your kid’s school, right before you started working part-time as an actor?

Sure. Not every tax situation is clear-cut and on a snap-and-send basis, like the Homeroom E-Return requires. You might feel the need to explain your situation to us in-person.

Thing is, MOST of the time, clients presume their tax situation is more complicated than WE know it is. We’ve seen it all, and it is seldom THAT extra.

Do it up, and leave the rest to us, the pros! We know where to find you (and we mean that in the nicest, non-stalkerish, most helpful way possible!)

  1. Complete the intake form.
    1. This form is designed to ask ALL the important questions that will allow us to file your tax return.
      1. Eg: How many tax forms do you have, which year are you filing for, what is your marital status, are you self-employed, etc.
  2. We will review your form and send you instructions on how to submit your tax documentation.
  3. We will schedule a phone call or email you any questions we may have.
  4. We will send you a tax return draft to review.
  5. We will e-file your tax return when we receive your signed tax draft.
To encourage easy and safe tax filing, you will receive the best Homeroom rate when you request the Homeroom E-Return!
Next blog post will delve deep into the electronic signature that will make even the computer-illiterate want to e-sign!

Homeroom E-Return: “Is it secure to submit my tax docs online?”

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Look up at the bright sky dotted with tiny humans dangling off stringed balloons, and you might wonder why anyone would want to take such a beautifully vicious plunge to their death. Statistically, however, paragliding is as safe as driving.

And just like driving or if you are inclined, paragliding, submitting your personal tax documentation online has never been more secure or fast! Send us photos or scanned copies of your paperwork in a snap and know that a professional has got your back!

We will email you instructions on how to securely submit all your paperwork to our unique LedgerDocs email address (see waaay below).

Here’s a blurb from the LedgerDocs website on the security of the growing app:

LedgerDocs’ first priority is to ensure that your information remains safe. We have invested in innovative architectural engineering to provide maximum data durability and availability, while using cutting edge security features to take special care of your data.

  • LedgerDocs uses a 256-bit SSL encryption to protect any information that travels between your browser and LedgerDocs. This is the same encryption that banks use for online transactions.
  • All of your data is backed up regularly to multiple locations, ensuring that there is no data loss in the event of a natural disaster.
  • Users are able to easily grant and revoke access privileges to documents and files with one click

On the real real

  • Avoid losing paperwork
  • Send files from anywhere with Wi-Fi *no appointment or parking required
  • Feel like a professional is holding your hand the entire time *in a non-creepy way, of course!

How do I send my files?

  1. Scan your tax paperwork OR snap pictures of it
  2. Go to your personal email inbox and attach up to five files MAX
  3. If you’re feeling up to it, type us a message as you would ANY other email
  4. Send to our LedgerDocs email: homeroom@app.ledgerdocs.com
    1. Subject: [YOUR NAME] Tax return
    2. Email: Please find attached [NUMBER OF TAX SLIPS]
  5. Delete from your Sent Mail email folder (if you want to be extra safe)
  6. Your job is done! Now you have the rest of the day to do what makes YOU happy! Paragliding, perhaps?

So stop wasting time with in-person appointments and get your E-Return started today!

 

Start Your E-Return Now

How to pay yourself as a corporation

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“Siri, how do I pay myself if I’m incorporated?” | Photo by Viktor Hanacek via Pic Jumbo

So you have gone through the process of incorporating and have finally reached the super fun part: PAYING YOURSELF WOOOOOO.

When it comes to paying yourself as a corporation, you have two options: You can either pay yourself a salary or you can pay yourself dividends.

Which option makes the most sense for you is influenced by your level of income, your corporate structure and of course your accountant’s advice.

Here is an overview of what each option has to offer.

Salary

This option is usually the more expensive of the two from a company perspective.

To set this up you will have to add yourself to the company payroll and ensure the company pays all the applicable taxes on your behalf and issues you a T4 annually.

CON

The company will have to pay payroll taxes on your behalf

PRO

You accumulate more room in your RRSPs to save on personal taxes

Need Help With Your Bookkeeping? Contact Us Today

Dividends

This one requires less work to set up but can get out of hand if you don’t keep track of your spending.

To make this one work you have to:

  1. Get a bookkeeper to figure out how much money you took from the business
  2. Your accountant will declare the money you have taken from the company as a dividend & issue you a T5 from the corporation

CON

You need to keep better track of your withdrawals and can pull out more income than intended increasing your tax rate.

PRO

You avoid paying payroll taxes.

WARNING:

  1. You cannot be a contractor to your own corporation because doing so creates a loophole that causes the Canada Revenue Agency (CRA) to miss out on taxes. Naturally, they have discovered this loophole and shut this option down!!!

As always, when in doubt or unsure of which option makes the most sense for you talk to a professional. A small investment on advice can provide big savings down the line.

Need Help With Your Bookkeeping? Contact Us Today

Hack: I’ve incorporated. What’s next?

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Handshake to that! | Photo by Viktor Hanacek via Pic Jumbo

 

You did it! Took the plunge and incorporated your small business.

Great work! The next question is floating in your head is probably – Now what?

Don’t panic! We are here to throw you a bookkeeping floaty to make sure you do not sink in the sometime cold and unnerving incorporation waters.

FIRSTLY, make sure you do not forget to do the following:

  • Pat yourself on the back. You just got yourself a brand new business for gosh sake!
  • Pick the official operating date
  • Get a new set of books and accounting records

THEN…

  • Apply for new tax registration numbers
  • Open new bank account and credit card, merchant service provider *if applicable
  • Change bills to be in the name of the corporation

HACK:

  • We recommend you see a lawyer before incorporating
  • Remember to put your GST/ PST numbers on your invoice template
  • Track any personal cash you put into the corporate bank account

Next week, we look at how to pay yourself when you are incorporated.

Register for our “Should I Incorporate” webinar on August 24 at 1pm today here to learn everything you need to know before you decide to Inc. up!

Beginner’s Guide: Why incorporate?

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It’s incorporation o’clock!

Incorporating can be the best thing that ever happened to you and your small business or a wrecking ball moment that sinks you into poverty.

Here are the pros and cons of incorporating:

PROS

You are NOT your business

Separate Entity

  • Reduces Personal Liability
    • When you are a operating as a sole proprietor, your personal assets can be seized to pay your business debts. If you incorporate your business, it becomes it’s own separate entity in terms of liability and financial responsibility.

Though your business is still liable for any debts it incurs, as a shareholder your personal assets are protected.

Unlimited Lifespan

  • Unlike a sole proprietorship which begins and ends with the owner, corporations can exist regardless of ownership changes.

Tax savings

  • Corporate tax rate is 11 per cent on the first $500,000 of net income
  • Personal tax rates increase as your income increases

CONS

They say, “Nothing in life worth having comes easy…” and such is often true with business incorporation…

Cost to incorporate

  • $1000-$1,500 with a lawyer (one-time charge)
    • Benefit: They will look at the long-term picture to ensure you have the correct corporate structure to maximize tax savings.

More government reporting

  • Annual report for the BC Corporate Registry

More tax returns

  • Once you incorporate you will have to file a corporate tax return AND a personal tax return

    • $1,500/ year if you choose a Homeroom-recommended accountant

Increased accounting costs

  • If you thought that your quarterly bookkeeping package was on the high end, you will be rattled by the cost increase once you incorporate
  • At Homeroom, minimum $2,400/ year for a straightforward home-based business
Need help with your bookkeeping? Talk to us today!

Questions you should ask before you incorporate your small business

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Sometimes no matter how hard and long you meditate on a question, it takes a guiding hand of a professional to light the darkened path | Photo by Annie Spratt via Unsplash

Say, “Holla” to Homeroom’s new small business incorporation series!

Deciding to incorporate your small business can save you money and legal hassle down the road. Do it at the wrong time, though, and you’re looking at a barrage of fees coming at you faster than you can say, “Open for business!”

So how do you know whether or not you should incorporate and what do you do once you take the plunge?

Over the next few weeks, we will look at the top questions you should ask before you incorporate your small business:

Register for our “Should I Incorporate” webinar on August 24 at 1pm today here to learn everything you need to know before you decide to Inc. up!

Xtreme-EffeX: Extremely creative and innovative design with impact

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As part of our Client of the Month series, we look at Xtreme-EffeX, top custom ironworks and fabrication biz with swag!

Imagine this: A beautiful four-story staircase with glass landings. You’re at the top floor, awestruck, as you glance down at the transparent tier and see the basement at the bottom of the house.

Xtreme-EffeX,  Custom Design and Fabrication, has been making projects like this a reality for residential and commercial properties in Vancouver and throughout North America since 2007.  In fact, they designed and built the swanky residential glass staircase mentioned in the first paragraph.

The brainchild of Ryan Ramsdale, Owner/ General Manager, who built Xtreme-EffeX out of his garage, has evolved into a flourishing retail and fabrication hub that connects businesses, homeowners and developers to the most cutting-edge design trends and products.

 

 

 

Photo: Ryan Ramsdale admits he does not have too many photos of himself. It is evident that his focus has always been on his family and business.

 

With Xtreme-EffeX inventive design-build process, the in-house design team creates unique, functional and durable products that FIT.

Their motto? “Customize rather than compromise. Because custom fits!”

It’s design with impact. With passion, precision and hands-on approach, it’s high-end work that exceeds expectations, going above and beyond with their out-of-the-box approach to realize your vision no matter how seemingly far-fetched or impossible.

Surely, it is no surprise the 10-year-old business has a five-star presence in the industry with access to the best products and materials on the market and the most skilled fabricators.

Whether it’s your outdoor living space that needs sprucing up or you are looking for a special installation project, or security solutions, Xtreme-EffeX is there to save the day, and make it a lot more awesome!

With no signs of slowing down, you’ve probably seen their eye-grabbing work at upscale restaurants, lottery show homes, and designer retail stores.

As part of our “Client of the Month” series, we caught up with Ramsdale on everything from life as a business owner to advice for new startups:

 

What motivated you to start your own business?

“The experience I gained through the industry and the drive to want to continually create custom products that my team and I can be proud of.”

What do you enjoy most about being a business owner?

“Through hard work, the freedom and ability to create a schedule that benefits me, and especially my family.”

 

What’s your favourite part about the fabrication industry?

“The ability to take raw materials and create functional items, using different processes and practices, to achieve what most people don’t see as possible.”

 

What’s your #1 motivator?

“My #1 motivator would definitely be my family. Working hard and developing a business that allows me the time to be there for and with my family.”

 

Describe your ‘a-ha’ moment

“Being able to confidently rely on my team to carry out the tasks that I would typically feel to be my responsibility. Releasing the control and being pleased with the results.”

 

What’s your vision for the business?

“To have self-sufficient business with a dedicated team of motivated fabricators and designers that consistently exceed the expectations of our customers and clients in every aspect.”

 

What advice do you have for other people who would like to start their own business?

“‘With dedication to your dream, you can spend a few years of your life like most people won’t, so that you can spend the rest of your life like most people can’t.'”

Anonymous quote

 

How do you achieve a work/ life balance?

“With the technology of today, it makes it very difficult to be able to turn work ‘off’. But it’s planning for tomorrow, today, then actually turning work OFF and enjoying what it is that we work so hard for.”

 

Who could benefit from your services?

“Home builders, home owners, architects, developers, or anyone with a design idea or concept that needs to be brought to life through our design/build process.”

 

Find Xtreme-EffeX online here and check out all the neat things they do on the daily to make living and work spaces way cooler!

 

Five ways your business will benefit from having a professional bookkeeper

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Girl working on her MacBook in caffe by Viktor Hanacek

Sometimes it’s easy to get caught up in the day-to-day business operations that you miss the little things that can add up to big and pricey mistakes. Whether it is a late GST filing or a missed payroll remittance payment, we are here to help with the financial side of your small business.

Here are five ways your business will benefit from having a professional bookkeeper in your corner:

  1. We take on your deadlines. We take this so seriously that we will pay for late filing penalties that you incur if we miss one of your deadlines.
  2. If you have cash-flow problems and owe money to the CRA for your various accounts, we can help prioritize your payments so that you are incurring the least amount of penalties.
  3. Do you have employees OR you pay yourself a salary and remit source deductions?
    1. It is very easy to mess up payroll. We have found this is the number one area that clients always do incorrectly if they are doing their own bookkeeping. Even though the CRA has the online payroll calculator available to everyone, we have yet to see someone that has used it correctly.
    2. Consequences of payroll mistakes:
      1. Penalties and interest for late remittances are assessed on a monthly basis.
      2. Payroll non-compliance is considered by the CRA to be the worst offence. Eg We had a client who “did” her own T4. She calculated her own deductions, remitting wrong amounts and didn’t even file the T4 resulting in late filing penalties. This was a highly educated professional in her field who mishandled payroll. Even if you only have yourself on the same salary every month, it is still possible to do it incorrectly.
  4. We will not file a return that is not reasonable by CRA standards.
    1. Our job is to keep you off of the CRA radar. We have filed thousands of returns of all types. We will let you know if a return does not make sense before we file it and could cause the CRA to investigate it. We will work with you to make it reasonable.
  5. We have not had an audit that we were not expecting.
    1. Certain types of returns are red flags for audits eg. large GST refunds. We anticipate this, let the client know in advance that we are expecting this, and tell them how we are going to handle it.

Leave the books to your professional bookkeeper buddies and focus on what you love! 🙂