June 15 Deadline Coming Up Fast for Investors, Proprietors

June 15 is an important tax filing deadline for seniors, investors and proprietors. The second quarterly instalment payment for the year is required on this date. So is the filing of the T1 return for proprietors and their spouses. It can be an expensive day, so it’s important not to delay in determining the amounts payable, especially since CRA has new resources to enforce delinquencies.

The March 2016 federal budget proposed an investment of $444.4 million over five years to allow CRA to enhance its efforts to crack down on tax evasion and avoidance. Proprietors in particular should allow time to file an audit-proof return. There are many places in which auditors will examine further:

Mixed-use expenses are particularly prone to tax filing errors. These are the expenses that are incurred partly to earn income from the business and partly for personal use. The most common of these are entertainment expenses, home office expenses and expenses for the use of the vehicle owned by the proprietor.

Entertainment expenses include the costs of meals, sports tickets and several other expenses including tips, so long as those expenses were incurred to entertain current or prospective business customers, or with the intent to increase revenue. A log showing the date, activity, client and costs should be maintained and receipts must be kept. Personal meals and entertainment are not deductible, and even when entertaining a client, only 50% of the actual expenses may be claimed in most cases.

In the case of the home office, the proprietor may claim the expenses related to the home office if it is the principal place of business or the workspace is used exclusively to earn income from the business. Proprietors may claim a pro-rata portion of utilities, maintenance costs, rent, mortgage interest, property taxes and insurance. The total expenses of the home must be prorated according to the ratio of square footage used for business to the total square footage of the home. Technically, a proprietor may also claim capital cost allowance (CCA) on the value of the home office. However, this is generally not recommended if the home is the taxpayer’s principal residence because claiming CCA precludes any claim for the principal residence exemption on that portion of the home.

Auto logs are another area of concern. When a proprietor uses his or her own vehicle to earn income from the business, an auto log must be kept because only the business-use portion of the total expenses of owning and operating the vehicle may be deducted. The costs of gas and oil, maintenance and repairs, insurance, license etc. must be prorated according to the ratio of the kilometers driven for business to the total kilometers driven for the year. In addition, the depreciation on the vehicle may be claimed using capital cost allowance, but the CCA claim must also be prorated according to the ratio of business to total use.

Learn more about these and other expenses of proprietors, as well as reporting income, dealing with inventory, expenses of employees and filing of T4 slips and the GST return in the Knowledge Bureau Course T1 Professional Tax Preparation – Proprietorships.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.

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