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When you owe the CRA money, but your cash flow is low

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Once upon a time, this cup much like a bank account was filled to the brim, and a juicy olive accompanied the penniless toothpick that now quietly rests on the desk….

There is nothing quite like receiving the little brown envelope from the Canada Revenue Agency (CRA) reminding you that you have tax debt. It makes you realize this empty cup is a depressingly on-point indication of your current financial situation.

Instead of sitting around feeling sorry for yourself here is what you should do:

  • Make a payment arrangement: Call the CRA and set up an agreement to make smaller payments over time until your debt and applicable interest is paid. Ignoring the CRA will only amp up any financial and/ or legal consequences. IMPORTANT: The CRA may also charge interest compounded daily at the prescribed rate on any amount owing until your balance is paid in full.
    • Here are three ways you can work with CRA to set up a payment agreement today. Remember, no one likes to be ignored so pick up the phone NOW.
  • Considering bankruptcy? This is not a decision you should make lightly as it follows you for life. If this is an option you are considering, go to the Office of the Superintendent of Bankruptcy for more information and to discuss options before committing to this solution.
  • Are You Business owner? You might qualify for taxpayer relief from penalties and interest charges and reduce the total amount you or your business owes. See  Taxpayer relief provisions if your business qualifies.
  • Financial hardship provisions: Does your debt repayment make it hard for you to pay for food, utilities, housing, and other life essentials? You may qualify for help under the financial hardship provisions.
    • It is your responsibility to contact the CRA if repaying your debt is causing you financial hardship. The CRA will take your situation into account when reviewing your request. For more information and to see if you qualify, call 1-866-864-5823.

To ensure you don’t end up in the same situation next year we recommend talking to a tax consultant right away so that you can plan accordingly.

 

What happens if you miss the deadline to file your income tax return?

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Homeroom’s Alan Chau bursts into panic mode at the thought of a missed tax deadline…Lucky for him,  the Canada Revenue Agency (CRA) opened the option to file online on February 20, 2017. So, now he’s got some time in his hands…

 

Planning on forgetting to file your tax return on time?

The result of failing to file your personal income tax return by the April 30th deadline when there is a chance you owe the CRA money can best be revealed with the scary emoji: 

It is mostly scary financially as the penalty can cost a hefty coin. Basically, your wallet will get the worst of it.

Here’s what will happen:

  1. The CRA will charge you daily interest starting one day after your return is due on any unpaid amounts owing for the year. This includes any balance owing if the CRA reassess your return.
  2. The late-filing penalty is 5% of your balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If you were charged a late-filing penalty on a previous return eg: 2013, 2014, or 2015, your late-filing penalty for the current year may be 10% of your balance owing, plus 2% of your balance owing for each full month your return is late, to a maximum of 20 months. That’s double the trouble!
  3. Your goods and services tax/harmonized sales tax (GST/ HST), including any related provincial credits, Canada child benefit payments (including related provincial or territorial payments), and old age security benefit payments may be delayed or stopped.

Tax Tip

Even if you cannot pay your full balance owing on or before the deadline, you can avoid the late-filing penalty by filing your return on time.

Keep open and honest communication, and the CRA will be your BFF: agreeable, reasonable and understanding. But ignore or cheat them in any way and expect a pricey strike-back.

Self-employed Individuals

If you carried on a business during the tax year, your return has to be filed on or before June 15. However, if you have a balance owing for the year, you have to pay it on or before the April 30 deadline. We recommend that all sole proprietors have their tax returns ready to go for April 30 just to be safe.

Find out how to pay the CRA here.

Happy tax season!

How do you change your filed tax return?

 

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Whether it’s because your received a tax slip too late or hungoverly forgot to submit the documentation, here’s how you can make changes to an individual income tax return:

  1. Do NOT file another return for that year
  2. Wait for your notice of assessment before asking for changes to your return
  3. Go online (recommended, as it’s the speediest option!)
    • Log in to My Account
    • Click Change my return. You cannot use Change my return to change the following, according to the CRA:
      • a tax return that has not been assessed (see #2  above)
      • a tax return where nine reassessments exist for a particular tax year
      • a bankruptcy return
      • a return prior to the year of bankruptcy
      • carryback amounts such as capital or non-capital losses
      • a return of an international or non-resident client (including deemed residents of Canada, newcomers to Canada, and individuals who left Canada during the year)
      • the elected split-pension amount
      • a return where you have income from a business with a permanent establishment outside your province or territory of residence (you have to complete Form T2203, Provincial and Territorial Taxes – Multiple Jurisdictions)
      • If any of the above apply to you, see “Mail it”option (#5) below
    • Sign up for online mail to get instant access to your CRA records
  4. Contact your tax preparer (Homeroom loves to save the day!)
  5. Mail it: Send a signed letter to your tax centre asking for an adjustment to your return
    • By Mail: If you send a letter, make sure to give your name, address, and social insurance number and which tax year you want to adjust.
    • Send the following to your tax centre:
      • A completed Form T1-ADJ, T1 Adjustment Request, or a signed letter giving details of your request (including the years of the returns to be changed), your social insurance number, your address, and a telephone number where we can call you during the day
      • ALL supporting documents, including those for the original assessment, for your change

IMPORTANT: Send your current year return separately from any request to change a return for another year.

The Wait Game

  • Online: 2 weeks
  • Mail: 8 weeks

It may take longer if CRA is requesting more information or your request is sent in spring or summer.

When CRA review is done, you will receive:

  • a notice of reassessment showing any changes to your return and
  • a letter explaining why we did not make the changes you asked for or if no changes were needed

Want to receive a tax reminder?

Complete form below, and here’s to a perfect 2017 tax season!

Add me to the tax reminder list!

 

 

 

What if you don’t have all your tax slips?

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Have you received all your income slips and do you have all your income tax information neatly clipped in a smooth-surfaced Manila folder ready to go for tax season? (Bonus points for dressing up your tax folder in self-affirming stickers that scream “AWESOME!!” or, “YOU ARE A STAR”).

If you are frustratingly shaking your head or wondering what we are talking about then read on:

Tax slips are provided by your employer, payer or administrator and are referred to when filing your tax return.

You should receive most of your slips and receipts by the end of February. However, T3 (Statement of Trust Income Allocations and Designations), and T5013 (Statement of Partnership Income) slips do not have to be sent before the end of March.

Still, by the time March rolls in, you might find yourself seething at the sight of your mail carrier, who’s brought you EVERYTHING—even Bob’s mail, and you don’t even KNOW a Bob—but your precious tax slips.

Take a moment to:

  1. Breathe
  2. Repeat this mantra: I will not go to jail, I will not go to jail, I will not go to jail
  3. Read this blog post about how to fetch your slips
  4. File your taxes before the deadline EVEN if you don’t obtain all of your slips in time!

Here are three ways to get a copy of your tax slips for the current year:

  1. Contact your employer, or the issuer of the slip, verify that they have the correct contact and mailing information for you and then request a new copy. Many times they will be able to email this to you.
  2. Complete a T1013 form. This allows a third-party (your accountant..us!) to view your tax information online. We issue this form to all our clients to make tax season as painless as possible.
  3. Register for the CRA My Account for Individual this will allow you to view your tax information online and retrieve missing information.

 

Obtaining a slip for prior years

If you need a T-slip for a prior year, you can get a copy by:

Ta-Da!! The CRA opens its online filing services February 20. Homeroom starts filing March 1!

You got this!!

Request the Homeroom E-return today here. We’ll take care of the rest!

 

 

 

What is the Homeroom E-return?

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Here’s what you need to do:

  • Request an e-return online
  • We’ll email you instructions on how to upload your documents
  • Snap pictures of your T4s, etc., and securely upload them
  • Homeroom processes your paperwork and contacts you with any questions
  • Homeroom sends you a tax return draft in PDF format
  • You approve by electronically signing
  • Homeroom e-files your taxes
  • Homeroom sends you your filed tax return PDF

Benefits:

Save time and money (and paper!) by getting the best Homeroom rate. No paying for parking, no sitting in traffic, no waiting for your appointment.

 

Sole Proprietor: “Do I need to file my business and personal tax returns separately?”

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Running a small business is an eternal learning curve of aha moments. Whether you’re filing an income tax return as a startup or exploring entrepreneurship for down the road, here’s one of the most popular questions that come up every year come tax time.

“Do I need to file two tax returns?”

Every year, many new small business owners who are NOT incorporated ask whether they need to file two tax returns: personal and business.

Before we jump into the answer let’s look at what is classified as business income.

Canada Revenue Agency (CRA) classifies business income as money you earn from the following:

  • Profession
  • Trade
  • Manufacture or
  • The undertaking of any kind, an adventure or concern in the nature of trade, or any other activity you carry on for profit and there is evidence to support that intention.

(So essentially any money you make that doesn’t come with a T4 at the end of the year)

NOTE: This income may be earned from a business you operate yourself as a sole proprietorship (SP) or with someone else as a partnership.

CRA Tip: You have to report all amounts of income that are required for calculating income for tax purposes. If you do not report all your income, you may be subject to a penalty of 10% of the amount of income that you did not report.

I Definitely Have Business Income. Do I Need To File Two Tax Returns?

The short answer is – NO! You just need to file ONE return. But… and there is always a BUT…There is more to the process than a simple personal tax return.

Additional Step

As a sole proprietor (SP), you need to report your business income on your personal tax return (AKA T1 General) by completing and attaching a Form T2125: Statement of Business or Professional Activities (see below).

 

Other Fun Facts You Should Know

While you only need to file ONE tax return, there are some tax benefits to being self-employed that you don’t get as an employed individual:

  1. Deadline
    1. While the deadline for individuals filing their 2017 personal income tax return is April 30, 2018, SPs get until June 15, 2018 to file their taxes. That is, if you or your spouse or common-law partner carried on a business in 2017. However, if you owe tax money that is due on April 30, so it’s best to get in early.
  2. One extra form to complete
    1. All your business tax deductions are reported on Form T2125, Statement of Business or Professional Activities (pictured above).
  3. Business tax deductions
    1. Business expenses: Deduct only the business expenses from business income Eg. Meals, Travel, Equipment, Office Supplies relevant to your business.
    2. Home Office Tax Deductions: In order to deduct expenses, the workspace must either be:
      • the place where the individual principally (more than 50% of the time) performs administration or employment duties,or

      • used on a regular and continuous basis, for meeting customers or other persons in the ordinary course of performing the office or employment duties.

      • You can deduct expenses that are required to run your home office. Eg: Utilities and maintenance costs. If you rent your home, you can deduct a portion of your monthly rent. You can deduct the cost of office expenses (eg: Pencils, stationery, paper clips, stamps, etc). You have to claim the maintenance and repairs related to business use of work space in your home as business-use-of-home expenses. Learn more here.

    1. Private Health Services Plan Premiums: You can deduct the Private Health Services Plan (PHSP) Premiums you pay to insure yourself, your spouse and/or any dependents. Click here for more info.

Can Homeroom Just File For Me?

Of course, individual and business tax returns are our specialty.

Check out our Business Tax Checklist to see what we need to complete your return.

Contact us here if you have any questions or concerns.

Happy 2018 tax season!