An income statement is a summary of your company’s income and expenses over a specific accounting period. Most common items in an income statement are listed below.

Revenue

• Sales of goods and services
• Investment revenue
• Commission revenue
• Rental revenue
• Other revenue

Cost of sales

• Opening inventory
• Purchases/cost of materials
• Closing inventory

Operating Expenses

• Advertising and promotion
• Donations
• Amortization of intangible assets
• Goodwill impairment loss
• Bad debt expense
• Employee benefits
• Amortization of tangible assets
• Insurance
• Interest and bank charges
• Credit card charges
• Training expense
• Business taxes, licences and memberships
• Franchise fees
• Office expenses
• Professional fees
• Rental
• Repair and maintenance
• Salaries and wages
• Directors fees
• Sub-contracts
• Supplies
• Computer-related expenses
• Property taxes
• Travel expenses
• Utilities
• Vehicle expenses
• Shipping and warehouse expense
• Delivery, freight and express
• Supplies
• General and administrative expenses
• Other expense

You can download the Corporation Tax Preparation Checklist- Income Statement

Any questions about this checklist please contact 613-608-8788 Jack Liu or go to our website https://www.incometaxottawa.ca/ to get more information.

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Depending on your business you may have to register GST/HST account.

Mandatory GST/HST account registration

You have to register for a GST/HST account if:

• you provide taxable supplies in Canada; and
• your business total amount of all revenues (before expenses) is more than $30,000 in four consecutive calendar quarters.

Voluntary GST/HST account registration

If you are a small supplier, which means your business gross annual revenue is less than $30,000, and you are making taxable supplies of goods and services in Canada, you can register voluntarily.

If you decide not to register for the GST/HST,

• You do not charge the GST/HST to your customers
• You cannot claim an input tax credit (ITC) to recover the GST/HST paid or payable on your purchases and operating expenses

If you decide to register for the GST/HST,

• Your effective date of registration is usually the date you applied to be registered. However, the CRA will accept an earlier effective date, if the date is within 30 days of the date of the application for registration.
• You have to charge, collect, and remit the GST/HST on your taxable supplies of goods and services
• You have to file GST/HST returns on a regular basis
• You may claim ITCs to recover the GST/HST paid or payable on your purchases and operating expenses
• You have to stay registered for at least one year before you can cancel your registration (unless you stop your commercial activities).

You cannot register for a GST/HST account if you provide only exempt goods and services.

What do you need to decide while registering for a GST/HST account

Fiscal year

You have to choose has a fiscal year for GST/HST purposes. The CRA use this fiscal year to determine when your GST/HST returns are due. In most cases, you can choose your GST/HST fiscal year the same as a calendar year, which begins on January 1 and ends on December 31.

Reporting periods

When you register for a GST/HST account, the CRA assign you a reporting period. If you annual revenue is less than $1,500,000, you will be assigned annual reporting period. You also have the option to file monthly or quarterly by making an election.

How do you register for a GST/HST account?

Online

You can register electronically through the link http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html

By telephone

You can register for a business number (BN) and CRA program accounts by calling 1-800-959-5525.

By mail or fax

You can register for a business number (BN) by using Form RC1, Request for a Business Number and mailing or faxing it to your local tax centre.

What is the HST?

The HST is a sales tax that applies to most goods and services in Canada. Generally, if you are a GST/HST registrant, you have to charge and collect the sales tax for the government on all taxable supplies (other than zero-rated supplies) you provide to your customers.

Taxable supplies of goods and services

Most property and services supplies in or imported into Canada are subject to GST/HST. Examples of taxable supplies

• sales of new housing
• sales and rentals of commercial real property
• sales and leases of automobiles
• advertising
• taxi and limousine transportation
• legal and accounting services
• hotel accommodation
• barber and hairstylist services

Zero-rated supplies of goods and services

You do not collect the GST/HST on these supplies. Examples of taxable supplies

• basic groceries such as milk, bread, and vegetables
• agricultural products such as grain, raw wool, and dried tobacco leaves
• most farm livestock
• most fishery products such as fish for human consumption
• certain medical devices such as hearing aids and artificial teeth
• exports (most goods and services for which you charge and collect the GST/HST in Canada, are zero-rated when exported)
• many transportation services where the origin or destination is outside Canada

Exempt supplies of goods and services

You do not charge or collect the GST/HST on exempt supplies. You cannot claim ITCs to recover the GST/HST paid for your business expenses. Examples of exempt supplies.

• a sale of housing that was last used by an individual as a place of residence
• long-term rentals of residential accommodation (of one month or more) and residential condominium fees
• most health, medical, and dental services performed by licensed physicians or dentists for medical reasons
• child care services, where the primary purpose is to provide care and supervision to children 14 years of age or under for periods of less than 24 hours per day
• legal aid services
• many educational services
• music lessons
• most services provided by financial institutions such as lending money or operating deposit accounts
• the issuance of insurance policies by an insurer and the arranging for the issuance of insurance policies by insurance agents

As an employer, you have to deduct Canada Pension Plan contributions from an employee’s pensionable earnings if that employee:

• is in pensionable employment during the year; and
• is not considered to be disabled under the CPP or the Quebec Pension Plan (QPP); and
• is 18 to 70 years old even if the employee is receiving a CPP or QPP retirement pension. Exception: do not deduct Canada Pension Plan (CPP) if the employee is 65 to 70 years old, and gives you Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election with parts A, B and C completed.

You have to deduct CPP contributions from your employee’s pensionable earnings. As an employer, you must contribute an amount equal to the CPP contributions that you deduct from your employees’ remuneration.

Each year, the CRA provide the maximum pensionable earnings($54,900 in 2016), the year’s basic exemption amount($3,500 in 2016), the rate(4.95 in 2016) the maximum annual employee and employer contribution ($2,544.30 in 2016), and maximum annual self-employed contribution($5,088.60 in 2016).

Example

CPP contributions you deducted from your employee’s salary($2000/month) in the month ($84.56) + your share of CPP contributions ($84.56) = Total amount you remit for CPP contributions ($169.12).

You should stop deducting deduct Canada Pension Plan contributions when the employee’s annual earnings reach the maximum pensionable earnings or the maximum employee contribution for the year ($2,544.30 for 2016).

The annual maximum pensionable earnings ($54,900 for 2016) applies to each job the employee holds with different employers . If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct CPP contributions without taking into account what the previous employer paid. This is the case even if the employee has contributed the maximum amount during the previous employment.

Any overpayments will be refunded to employees when they file their income tax and benefit returns. However, there is no provision in the CPP that would allow the CRA to refund or credit the employer for his or her contributions in those circumstances.

As an employer, you have to deduct employment insurance (EI) premiums from your employee’s insurable earnings up to the yearly maximum. And you must contribute 1.4 times the amount of EI premiums that you deduct from your employee’s remuneration.

Insurable employment includes most employment in Canada under a contract of service (employer-employee relationship).

There is no age limit for deducting EI premiums.

EI premium rate and maximum

Each year, the CRA give the maximum insurable earnings and rate for you to calculate the amount of EI to deduct from your employees.

In 2016, the maximum annual insurable earning is $50,800; the EI premium rate is 1.88%; the maximum annual employee premium is $955.04 and the maximum annual employer premium is $1,337.06.

You have to deduct EI premiums from insurable earnings you pay to your employees. In addition, you must pay 1.4 times the amount of the employee’s premiums.

Example

If you pay salary $2000/month to one employee in 2016, the EI premiums you deducted from this employee for the month

$37.6 ($2000 x 1.88%)

Plus: Your share of EI ($37.6× 1.4)

$52.64

Total amount you remit for EI premiums for this month

$90.24

You should stop deducting employment insurance premiums when you reach the employee’s maximum insurable earnings ($50,800 for 2016) or the maximum employee premium for the year ($955.04 for 2016).

The annual maximum insurable earnings ($50,800 for 2016) apply to each job the employee holds with different employers. If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct EI premiums without taking into account what the previous employer paid. This is the case even if the employee has paid the maximum premium amount during the previous employment.

The CRA will credit or refund any overpayments to employees when they file their income tax and benefit return.

EI premiums are not required to be deducted for the following types of employment:

• Casual employment if it is for a purpose other than your usual trade or business.
• Corporate employee who controls more than 40% of the corporation’s voting shares receiving salary, wages or other remuneration
• Directors’ fees
• Employment that is an exchange of work or service (even if there is a contract of service)
• Tips and gratuities (direct tips or gratuities – not controlled by the employer)

As an employer, you have to make payroll deductions and remittances to pay yourself and/or your employees. Below is the latest update you should know to make your payroll deduction and remittances easier and painless.

Remit your payroll deductions quarterly instead of monthly.

Starting in 2016, if you are an new small employers, you can choose to remit your payroll deductions quarterly instead of monthly.

If your monthly withholding amount is less than $1,000 and you have a perfect compliance history, you will be eligible for quarterly payroll deductions and remitting.

You have to send your deduction before the 15th of the month immediately following the end of each quarter. The due dates for quarterly deductions are April 15, July 15, October 15 and January 15.

Online services for payroll deductions and remittances

You can now:

• authorize the CRA to withdraw an amount from your bank account on date(s) that you choose; and
• enrol for direct deposit, or update the banking information.

To access CRA online services, go to: http://www.cra-arc.gc.ca/mybusinessaccount/. You can also authorize a registered representative to act on your behalf.

Penalties and interest if you make your payroll deductions late

The penalty is:

• 3% if the amount is one to three days late;
• 5% if it is four or five days late;
• 7% if it is six or seven days late; and
• 10% if it is more than seven days late, or if no amount is remitted.

In addition, if you are assessed this penalty more than once in a calendar year, the CRA may apply a 20% penalty on the second or later failures if they were made knowingly or under circumstances of gross negligence.

If you do not pay an amount, the CRA may apply interest from the day your payment was due. The interest rate we use is determined every three months, based on prescribed interest rates. Interest is compounded daily.

Claiming your home expense tax deductions can result in big tax saving. If you are work-at-home employee or self-employed, you may be qualified to claim your home expense tax deductions.

Make sure you are qualified to claim home expense tax deductions.

If you are work-at-home employee, you must get your employer’s signature on a form T2200 – Declaration of Conditions of Employment, which should confirm that you are required to do some work from home.

If you are self-employed, to be qualified to claim the deduction, at least one of the two following conditions must be met:

• Your home office is your principal place of business; or
• You use the work space in your home only for the purpose of earning business income, and use it on a regular, ongoing basis to meet clients or customer.

If you have offices inside and outside your home and you want to claim home expense tax deductions, you need to be prepared with enough information to support your claim that you use your home office on a regular and continuous basis for your business.

Know what home expense tax deductions you can claim.

If you are work-at-home employee, you can claim

• Utilities
• Maintenance
• Rent
• Insurance if you are commission employee
• Property taxes if you are commission employee

If you are self-employed, you can claim

• Utilities
• Maintenance
• Insurance
• Property taxes
• Mortgage interest

Calculate the percentage of home expense you can claim

Once you calculate the total home expense, you have to determine the percentage you can claim as your business expense. It must bases on reasonable basis, such as the percentage of the total area of your home that the work space represents.

Don’t claim capital cost allowance (CCA) on your home office.

You can claim capital cost allowance (CCA) on the appropriate percentage of your home, but it has two disadvantages.

• Any CCA you claimed will be recaptured into income when you sell your home.
• CRA will not allow you claim the principal residence exemption. It means you have to pay tax on capital gain when you sell your home.

You cannot create business loss by claiming home expense business deduction. However, the excess amount that cannot be claimed in the year may be carried forward and deducted in the subsequent year.

Any questions, please don’t hesitate to contact us.

If you use your capital assets for your business, you can claim tax deduction on your capital asset. To calculate capital cost allowance tax deduction, and any recaptured CCA and terminal losses, you should use Area A on page 5 of your Form T2125.

Even if you are not claiming a deduction for CCA, you still should complete the appropriate areas of the form T2125 to show any additions and dispositions during the year.

Below, we explain how to calculate capital cost allowance.

Column 1 – Class number of your properties

If this is the first year you are claiming CCA, you can find the class number in Capital Cost Allowance Class of commonly used business asset. If you claimed CCA last year, you can get the class numbers of your properties from last year’s tax return form.

Column 2 – Undepreciated capital cost (UCC) at the start of the year

If this is the first year you are claiming CCA, skip this column. Otherwise, enter in this column the UCC for each class at the end of last year. Enter the amounts from column 10 of your last year T2215 form.

Column 3 – Cost of additions in the year

If you buy or make improvements to depreciable property in the year, CRA consider them to be additions to the class in which the property belongs. To calculate capital cost allowance for these asset additions, you should complete Area B and Area C of your Form T2125 as explained below.

• Area B – Details of equipment additions in the year

  List the details of all equipment (including motor vehicles) you purchased. Group the equipment into the applicable classes.

Column 4 – Proceeds of dispositions in the year

Enter the details of your dispositions as explained below.

If you disposed of a depreciable property, enter in column 3 of the appropriate dispositions area (Area D or Area E) one of the following amounts, whichever is less:

• your proceeds of disposition minus any related expenses; or
• the capital cost of the property.

Column 5 – UCC after additions and dispositions

You cannot claim CCA when the amount in column 5 is:

• negative (see “Recapture of CCA” below); or
• positive and you do not have any property left in that class at the end of the year.(see “Terminal loss” below).

Column 6 – Adjustment for current-year additions

In the year you acquire or make additions to a property, you can usually claim CCA on half of your net additions (the amount in column 3 minus the amount in column 4). CRA call it the half-year rule.

Column 7 – Base amount for CCA

Base your CCA claim on this amount. For a Class 10.1 vehicle you disposed, you may be able to claim 50% of the CCA that would be allowed if you still owned the vehicle at the end the year. This is known as the half-year rule on sale.

Column 8 – Rate (%)

In this column, enter the rate for each class of property in Area A.

Column 9 – CCA for the year

In column 9, enter the CCA you want to deduct for 2013. The CCA you can deduct cannot be more than the amount you get when you multiply the amount in column 7 by the rate in column.

Column 10 – UCC at the end of the year

This is the undepreciated capital cost (UCC) at the end of the year. This is the amount you will enter in column 2 when you calculate capital cost allowance claim next year.

Special rules to calculate capital cost allowance

• Recapture of CCA

  If the amount in column 5 is negative, you have a recapture of CCA. Include your recapture in your income on line 8230, “Other income” in Part 3 on page 2 of your Form T2125. A recapture of CCA can happen if the proceeds from the sale of depreciable property are more than the total of the UCC of the class at the start of the period plus the capital cost of any new additions during the period.

• Terminal loss

  If the amount in column 5 is positive and you no longer own any property in that class, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of a fiscal period, you have no more property in the class but still have an amount you have not deducted as CCA. You can usually subtract this terminal loss from your gross business or professional income in the year you disposed of the depreciable property. Enter your terminal loss on line 9270, “Other expenses,” in Part 5 on page 3 of your Form T2125.

Example on how to calculate capital cost allowance

When Cathy bought her new car in May 2014, it cost $16,000 including all charges and taxes. Since the cost of the car was $30,000 or less, she includes the car in Class 10. She was allowed a $1,000 credit when she traded in her old car (which was also in Class 10). Her UCC on the old car at the start of 2013 was $1,000. Cathy knows that her personal use of the car will vary each year.

Cathy has a desk, calculator, filing cabinets, and shelves in her store. These are Class 8 depreciable properties. The UCC of these properties at the start of 2013 is $5,000. She did not buy any Class 8 properties in 2013.

Therefore, she completes Form T2125 as follows:

Since Cathy used the car partly for personal use, she calculates the amount to include on line 9936 for her car as follows:
25,000 (business kilometres)/ 30,000 (total kilometres)× $2,550 = $2,125

She wants to claim the maximum CCA allowed to her in 2014. The most that Cathy can claim for CCA for 2013 is $2,125 for her car and $1,000 for the Class 8 properties.

She enters $3,125 on line 9936 in Part 5 on page 3 of Form T2125.

Different capital assets may belong to different capital cost allowance classes and have different CCA rates. To calculate your tax deduction of your capital cost, you need to classify your capital assets into different assets classes, and then use the different CCA rates in the calculation. The following lists the classes and CCA rates for most commonly used business assets.

Capital Cost Allowance Class 1 with CCA rate 4%

Class 1 includes most buildings acquired after 1987, unless they specifically belong in another class. Class 1 also includes the cost of certain additions or alterations you made to a Class 1 building or certain buildings of another class after 1987.

You also include in these classes the parts that make up the building, such as:

• electrical wiring;
• lighting fixtures;
• plumbing;
• sprinkler systems;
• heating equipment;
• air-conditioning equipment (other than window units);
• elevators; and
• escalators.

Note: Most land is not depreciable property. Therefore, when you acquire property, only include the cost that relates to the building.

Capital Cost Allowance Class 3 with CCA rate 5%

Most buildings acquired before 1988 are included in Class 3 or Class 6.

Include in Class 3 the cost of any additions or alterations made after 1987 to a Class 3 building that does not exceed the lesser of the following two amounts:

• $500,000; and
• 25% of the building’s capital cost (including the cost of additions or alterations to the building included in Class 3, Class 6, or Class 20 before 1988).

Any amount that exceeds the lesser amount above is included in Class 1.

Capital Cost Allowance Class 6 with CCA rate 10%

Include in CCA Class 6 with a CCA rate of 10% a building if it is made of frame, log, stucco on frame, galvanized iron, or corrugated metal.
Also include in Class 6 certain greenhouses and fences.

Capital Cost Allowance Class 8 with CCA rate 20%

Class 8 with a CCA rate of 20% includes certain property that is not included in another class. It includes:

• furniture,
• appliances,
• tools costing $500 or more per tool,
• some fixtures,
• machinery,
• outdoor advertising signs,
• refrigeration equipment,
• photocopiers, fax machines and telephone, and
• other equipment you use in business.

Capital Cost Allowance Class 10 with CCA rate 30%

It includes:

• motor vehicles,
• passenger vehicles unless they meet a Class 10.1 condition,
• computer hardware and
• systems software

Capital Cost Allowance Class 10.1 with CCA rate 30%

Include your passenger vehicle in Class 10.1 if the cost (not including HST) is more than $30,000. And you should list each Class 10.1 vehicle separately.

Example

Peter bought two passenger vehicles to use in his business. The cost for vehicle 1 is $33,000 + $4,290 (HST) = $37,290; and the cost of vehicle 2 is $28,000 + $3,640 (HST) = $31,640.

Peter should put Vehicle 1 in Class 10.1, since it cost him more than $30,000. And the capital cost for Vehicle 1 is $30,000 + $3,900(HST) = $33,900. This is because the maximum capital cost you can claim for a passage vehicle is $30,000.

Peter should put Vehicle 2 in Class 10, since it did not cost him more than $30,000. And the capital cost for Vehicle 2 is $28,000 + $3,640 (HST) = $31,640.

Capital Cost Allowance Class 12 with CCA rate 100%

Class 12 includes

• china, cutlery,
• linen,
• uniforms,
• computer software (except systems software), and
• tools, which cost is less than $500.

You can claim capital cost allowance (CCA) on depreciable assets to deduct your business income or rental income. Those depreciable assets include buildings, vehicles, furniture and equipments, that you use in your business. Those assets usually wear out several years, so you can’t deduct all their cost in one single year. Instead, you should claim capital cost allowance based on their capital cost and capital cost allowance rates.

1. Calculate the capital cost

Capital cost is the amount on which you first claim capital cost allowance. The capital cost of a property is usually the total of:

• the purchase price (not including the cost of land, which is not depreciable);
• the part of your legal, accounting, engineering, installation, and other fees that relates to buying or constructing the property (not including the part that applies to land);
• the cost of any additions or improvements you made to the property after you acquired it, if you did not claim these costs as a current expense (such as modifications to accommodate persons with disabilities); and
• for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if these expenses have not been deducted as current expenses.

2. Understand Capital Cost Allowance (CCA)

Capital cost allowance (CCA) is the deduction you can claim over several years for the cost of depreciable property, which wears out or becomes obsolete over time such as a building, furniture, vehicle, or equipment, that you use in your business.

3. Special rules to claim capital cost allowance

Generally, you should use the declining balance method to claim capital cost allowance. This means that you claim CCA on the capital cost of the property minus the CCA you claimed in previous years, if any. The balance declines over the years as you claim CCA.

Example

Last year, Sue bought a machine for $60,000 to use in her business. On her income tax return for last year, she claimed CCA of $1,200 on the machine. This year, Sue has to base her CCA claim on the balance of $58,800 ($60,000 – $1,200).

• You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year.For example, if you do not have to pay income tax for the year, you may not want to claim capital cost allowance. This is because Claiming CCA reduces the CCA available for future years.
• In the year you acquire a property you can usually claim CCA only on one-half of the cost. This is called the half-year rule.
• You cannot claim capital cost allowance on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets.
• If you claim CCA and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Or, you may be able to deduct an additional amount from your income as a terminal loss.
• If your fiscal period is less than 365 days, you have to prorate your CCA claim. For example, if you start a business in June 1, 2013, your fiscal period is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can claim is $2,052 ($3,500 × 214/365).