Honesty and transparency is always the best practice and the safest way to approach taxation.

Tax season is coming up, and I have my friend Marc, CMA, answering questions about taxes to help prepare you. Take notes friends! This is important stuff:

CRA’s (Canada Revenue Agency) stance on expenses can be found here. More or less – you can claim the percentage used for business, personal expenses aren’t allowed. I personally think a best practice would be to have as much segregation of business and personal as possible… Just easier in the long run. Also, small businesses get audited more frequently then people do, so expect that you will be audited, and plan for it accordingly. Keep track of your income – however that’s earned and do the same for expenses and be able to provide proof of both.

Canadian tax doesn’t work on a fixed percentage basis, so setting aside a fixed percentage isn’t the best way. If you want to make it “easy” then go with the absolute highest amount of 43.7%. A more accurate answer is to consider your employment income and your small business income and look at what your annual tax amount will be. Federal rates are here and Provincial rates here. It’s a straight forward calculation… But hard to explain, so make sure you read it carefully.

If you are going to claim it as a deduction, 100% yes. If you are going to intermix the use of it or is something that could be construed to be a personal use item write on the receipt what it was used for and the % of it used.

You can do that, but only claim the items that were used for business income. It’s ideal to keep it separate because there’s just less to clarify if/when you get audited.

It really depends what you’ve hired them to do – so the best answer is to ask them what they need based on what you’re paying for. Generally, keep organized records of things, try filing your receipts/invoices/reports by month in date order. You can hire a book keeper (instead of an accountant) if you need to be cost conscious and you aren’t confident in keeping your records of financial transactions.

Thanks so much for your wise advice Marc!

A note about the recommended software: when I was Head Administrator for a local ESL school I used Simple Accounting. I never had accounting/bookkeeping training before and had to learn the program. It was hard and I had to get my brother, accounting student, to help me out, but I quickly got the hang of it and really liked using the program. I’ve heard great things about QuickBooks as well. (no, neither Sage nor Inuit, the companies of the two programs, are endorsing this post in any way).

Next month’s Squirrelly Expert will be Sara on Makeup. She made me beautiful on my wedding day so you know she’s good. If you have any questions to ask her about makeup and skincare send them my way to be included in the next Squirrelly Experts post.